UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
 FORM
10-Q
 
 
 (Mark
One)
 
 x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
                FOR
      THE QUARTERLY PERIOD ENDEDJUNE 30, 2008,
      ORo
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
                FOR
      THE TRANSITION PERIOD FROM _______________ TO
      _________________
 Commission
file number 1-14369
 
 AMERICAN
COMMUNITY PROPERTIES TRUST
 (Exact
name of registrant as specified in its charter)
 
 MARYLAND
                (State
      or other jurisdiction of incorporation or organization)
              52-2058165
                (I.R.S.
      Employer Identification No.)
 222
Smallwood Village Center
 St.
Charles, Maryland  20602
 (Address
of principal executive offices)(Zip Code)
 (301)
843-8600
 (Registrant's
telephone number, including area code)
 
 Not
Applicable
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 
 Yes x                                No
o
 
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “an accelerated filer and large accelerated filer” in Rule 12b-2
of the Exchange Act. (Check one):
  
   Large
accelerated filer o                                                      Accelerated filer
o Non-accelerated
filer oSmaller reporting
company x
   
   Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
   Yes o No x
  
 
 
 
 As
of August 8, 2008, there were 5,229,954 Common Shares, par value $0.01 per
share, issued and outstanding
  -1-
  AMERICAN
COMMUNITY PROPERTIES TRUST
 FORM
10-Q
 JUNE
30, 2008
 TABLE OF CONTENTS
 Page
      NumberPART
      I
              FINANCIAL
      INFORMATIONItem
      1.
              Consolidated Financial StatementsConsolidated Statements of Income for the Six Months
      Ended June 30, 2008 (Unaudited) and June 30, 2007
      (Unaudited)
              3Consolidated Statements of Income for the Three Months
      Ended June 30, 2008 (Unaudited) and June 30, 2007
      (Unaudited)
              4Consolidated Balance Sheets as of June 30, 2008
      (Unaudited) and December 31, 2007 (Audited)
              5Consolidated Statement of Changes in
      Shareholders' Equity for the Six Months Ended June 30, 2008
      (Unaudited)
              6Consolidated Statements of Cash Flows for the Six Months
      Ended June 30, 2008 (Unaudited) and June 30, 2007
      (Unaudited)
              7Notes to Consolidated Financial Statements
      (Unaudited)
              8Item
      2.
              Management's Discussion and Analysis of Financial Condition
      and Results of Operations for the Six and Three Months Ended June 30, 2008
      and 2007
              21Item
      4.
              Controls and Procedures
              31PART
      II
              OTHER
      INFORMATIONItem
      1.
              Legal Proceedings
              31Item
      1A.
              Risk Factors
              32Item
      2
              Unregistered Sales of Equity Securities and Use
      of Proceeds
              32Item
      3.
              Defaults Upon Senior Securities
              32Item
      4.
              Submission of Matters to a Vote of Security
      Holders
              32Item
      5.
              Other Information
              32Item
      6.
              Exhibits
              32Signatures
              33
 
  -2-
 Table of Contents
 
 AMERICAN COMMUNITY PROPERTIES TRUSTCONSOLIDATED
      STATEMENTS OF INCOMEFOR
      THE SIX MONTHS ENDED JUNE 30,(In
      thousands, except per share amounts)(Unaudited)2008
              
              
              2007RevenuesRental
      property revenues
              
              $
              30,937
              
              
              $
              29,832Community
      development-land sales
              
              
              5,997
              
              
              
              5,969Homebuilding-home
      sales
              
              
              2,982
              
              
              
              5,214Management
      and other fees, substantially all from related entities
              
              
              380
              
              
              
              506Reimbursement
      of expenses related to managed entities
              
              
              762
              
              
              
              893Total
      revenues
              
              
              41,058
              
              
              
              42,414ExpensesRental
      property operating expenses
              
              
              14,917
              
              
              
              15,114Cost
      of land sales
              
              
              4,725
              
              
              
              4,356Cost
      of home sales
              
              
              2,300
              
              
              
              3,816General,
      administrative, selling and marketing
              
              
              6,049
              
              
              
              5,368Depreciation
      and amortization
              
              
              5,042
              
              
              
              4,581Expenses
      reimbursed from managed entities
              
              
              762
              
              
              
              893Total
      expenses
              
              
              33,795
              
              
              
              34,128Operating
      income
              
              
              7,263
              
              
              
              8,286Other
      income (expense)Interest
      and other income
              
              
              362
              
              
              
              890Equity
      in earnings from unconsolidated entities
              
              
              331
              
              
              
              1,845Interest
      expense
              
              
              (8,556
              )
              
              
              (9,337
              )Minority
      interest in consolidated entities
              
              
              (1,321
              )
              
              
              (1,557
              )(Loss)
      income before provision for income taxes
              
              
              (1,921
              )
              
              
              127(Benefit)
      provision for income taxes
              
              
              (550
              )
              
              
              288Net
      loss
              
              $
              (1,371
              )
              
              $
              (161
              )Loss
      per shareBasic
      and Diluted
              
              $
              (0.26
              )
              
              $
              (0.03
              )Weighted
      average shares outstandingBasic
      and Diluted
              
              
              5,212
              
              
              
              5,210Cash
      dividends per share
              
              $
              -
              
              
              $
              0.20The
      accompanying notes are an integral part of these consolidated
      statements.
  -3-
 Table of Contents
 
 AMERICAN COMMUNITY PROPERTIES TRUSTCONSOLIDATED
      STATEMENTS OF INCOMEFOR
      THE THREE MONTHS ENDED JUNE 30,(In
      thousands, except per share amounts)(Unaudited)2008
              
              
              2007RevenuesRental
      property revenues
              
              $
              15,538
              
              
              $
              15,422Community
      development-land sales
              
              
              4,951
              
              
              
              2,214Homebuilding-home
      sales
              
              
              738
              
              
              
              2,126Management
      and other fees, substantially all from related entities
              
              
              192
              
              
              
              243Reimbursement
      of expenses related to managed entities
              
              
              381
              
              
              
              422Total
      revenues
              
              
              21,800
              
              
              
              20,427ExpensesRental
      property operating expenses
              
              
              7,579
              
              
              
              7,758Cost
      of land sales
              
              
              3,822
              
              
              
              1,440Cost
      of home sales
              
              
              583
              
              
              
              1,530General,
      administrative, selling and marketing
              
              
              3,179
              
              
              
              2,905Depreciation
      and amortization
              
              
              2,445
              
              
              
              2,397Expenses
      reimbursed from managed entities
              
              
              381
              
              
              
              422Total
      expenses
              
              
              17,989
              
              
              
              16,452Operating
      income
              
              
              3,811
              
              
              
              3,975Other
      income (expense)Interest
      and other income
              
              
              188
              
              
              
              338Equity
      in earnings from unconsolidated entities
              
              
              163
              
              
              
              172Interest
      expense
              
              
              (4,324
              )
              
              
              (4,720
              )Minority
      interest in consolidated entities
              
              
              (162
              )
              
              
              (185
              )Loss
      before benefit for income taxes
              
              
              (324
              )
              
              
              (420
              )Benefit
      for income taxes
              
              
              (146
              )
              
              
              (235
              )Net
      loss
              
              $
              (178
              )
              
              $
              (185
              )Loss
      per shareBasic
      and Diluted
              
              $
              (0.03
              )
              
              $
              (0.03
              )Weighted
      average shares outstandingBasic
      and Diluted
              
              
              5,213
              
              
              
              5,210Cash
      dividends per share
              
              $
              -
              
              
              $
              0.10The
      accompanying notes are an integral part of these consolidated
      statements.
  -4-
 Table of Contents
  AMERICAN COMMUNITY PROPERTIES TRUSTCONSOLIDATED
      BALANCE SHEETS(In
      thousands, except share and per share amounts)As
      of
                June
      30,
                2008
                (Unaudited)
              
              
              As
      of
                December
      31,
                2007
                (Audited)ASSETSASSETS:Investments
      in real estate:Operating
      real estate, net of accumulated depreciation
              
              $
              161,035
              
              
              $
              164,352of
      $155,130 and $150,292, respectivelyLand
      and development costs
              
              
              93,076
              
              
              
              84,911Condominiums
      under construction
              
              
              2,287
              
              
              
              4,460Rental
      projects under construction or development
              
              
              2,488
              
              
              
              853Investments
      in real estate, net
              
              
              258,886
              
              
              
              254,576Cash
      and cash equivalents
              
              
              22,131
              
              
              
              24,912Restricted
      cash and escrow deposits
              
              
              21,451
              
              
              
              20,223Investments
      in unconsolidated real estate entities
              
              
              6,509
              
              
              
              6,528Receivable
      from bond proceeds
              
              
              3,489
              
              
              
              5,404Net
      accounts receivable
              
              
              2,082
              
              
              
              2,676Deferred
      tax assets
              
              
              34,494
              
              
              
              34,075Property
      and equipment, net of accumulated depreciation
              
              
              1,026
              
              
              
              1,045Deferred
      charges and other assets, net of amortization of$3,162
      and $2,764 respectively
              
              
              9,593
              
              
              
              11,285Total
      Assets
              
              $
              359,661
              
              
              $
              360,724LIABILITIES AND SHAREHOLDERS'
      EQUITYLIABILITIES:Non-recourse
      debt
              
              $
              278,085
              
              
              $
              279,981Recourse
      debt
              
              
              29,127
              
              
              
              25,589Accounts
      payable and accrued liabilities
              
              
              23,816
              
              
              
              24,874Deferred
      income
              
              
              3,088
              
              
              
              3,214Accrued
      current income tax liability
              
              
              14,327
              
              
              
              14,620Total
      Liabilities
              
              
              348,443
              
              
              
              348,278SHAREHOLDERS'
      EQUITY:Common
      shares, $.01 par value, 10,000,000 shares
                authorized, 5,229,954
      shares issued and outstanding
                as
      of June 30, 2008 and December 31, 2007
              
              
              52
              
              
              
              52Treasury
      stock, 67,709 shares at cost
              
              
              (376
              )
              
              
              (376
              )Additional
      paid-in capital
              
              
              17,520
              
              
              
              17,377Retained
      deficit
              
              
              (5,978
              )
              
              
              (4,607
              )Total
      Shareholders' Equity
              
              
              11,218
              
              
              
              12,446Total
      Liabilities and Shareholders' Equity
              
              $
              359,661
              
              
              $
              360,724The
      accompanying notes are an integral part of these consolidated balance
      sheets.
  -5-
 Table of Contents
  AMERICAN COMMUNITY PROPERTIES
      TRUSTCONSOLIDATED
      STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(In
      thousands, except share amounts)Common
      Shares
              
              
              
              
              
              AdditionalPar
              
              
              Treasury
              
              
              Paid-in
              
              
              RetainedNumber
              
              
              Value
              
              
              Stock
              
              
              Capital
              
              
              Deficit
              
              
              TotalBalance
      December 31, 2007 (Audited)
              
              
              5,229,954
              
              
              $
              52
              
              
              $
              (376
              )
              
              $
              17,377
              
              
              $
              (4,607
              )
              
              $
              12,446Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,371
              )
              
              
              (1,371
              )Amortization
      of Trustee Restricted Shares
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              143
              
              
              
              -
              
              
              
              143Balance
      June 30, 2008 (Unaudited)
              
              
              5,229,954
              
              
              $
              52
              
              
              $
              (376
              )
              
              $
              17,520
              
              
              $
              (5,978
              )
              
              $
              11,218The
      accompanying notes are an integral part of this consolidated
      statement.
  -6-
 Table of Contents
 
 AMERICAN COMMUNITY PROPERTIES TRUSTCONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE SIX MONTHS ENDED JUNE 30,(In
      thousands)(Unaudited)2008
              
              
              2007Cash
      Flows from Operating ActivitiesNet
      loss
              
              $
              (1,371
              )
              
              $
              (161
              )Adjustments
      to reconcile net (loss) income to net cash (used in)Provided
      by operating activities:Depreciation
      and amortization
              
              
              5,042
              
              
              
              4,581Distribution
      to minority interests in excess of basis
              
              
              1,247
              
              
              
              1,827Benefit
      for deferred income taxes
              
              
              (419
              )
              
              
              (2,229
              )Equity
      in earnings-unconsolidated entities
              
              
              (331
              )
              
              
              (1,845
              )Distribution
      of earnings from unconsolidated entities
              
              
              331
              
              
              
              346Cost
      of land sales
              
              
              4,725
              
              
              
              4,356Cost
      of home sales
              
              
              2,300
              
              
              
              3,816Stock
      based compensation expense
              
              
              100
              
              
              
              104Amortization
      of deferred loan costs
              
              
              440
              
              
              
              478Changes
      in notes and accounts receivable
              
              
              594
              
              
              
              1,095Additions
      to community development assets
              
              
              (12,890
              )
              
              
              (13,661
              )Right
      of way easement
              
              
              -
              
              
              
              2,000Homebuilding-construction
      expenditures
              
              
              (127
              )
              
              
              (393
              )Deferred
      income-joint venture
              
              
              (126
              )
              
              
              (386
              )Changes
      in accounts payable, accrued liabilities
              
              
              (1,308
              )
              
              
              (7,000
              )Net
      cash used in operating activities
              
              
              (1,793
              )
              
              
              (7,072
              )Cash
      Flows from Investing ActivitiesInvestment
      in office building and apartment construction
              
              
              (1,635
              )
              
              
              (233
              )Change
      in investments - unconsolidated entities
              
              
              19
              
              
              
              1,513Change
      in restricted cash
              
              
              (1,228
              )
              
              
              (2,924
              )Additions
      to rental operating properties, net
              
              
              (1,567
              )
              
              
              (4,708
              )Other
      assets
              
              
              1,113
              
              
              
              863Net
      cash used in investing activities
              
              
              (3,298
              )
              
              
              (5,489
              )Cash
      Flows from Financing ActivitiesCash
      proceeds from debt financing
              
              
              1,292
              
              
              
              23,339Payment
      of debt
              
              
              (1,911
              )
              
              
              (18,720
              )County
      Bonds proceeds, net of undisbursed funds
              
              
              4,176
              
              
              
              5,645Payments
      of distributions to minority interests
              
              
              (1,247
              )
              
              
              (1,827
              )Dividends
      paid to shareholders
              
              
              -
              
              
              
              (1,032
              )Net
      cash provided by financing activities
              
              
              2,310
              
              
              
              7,405Net
      Decrease in Cash and Cash Equivalents
              
              
              (2,781
              )
              
              
              (5,156
              )Cash
      and Cash Equivalents, Beginning of Period
              
              
              24,912
              
              
              
              27,459Cash
      and Cash Equivalents, End of Period
              
              $
              22,131
              
              
              $
              22,303The
      accompanying notes are an integral part of these consolidated
      statements.
  -7-
 Table of Contents
  AMERICAN COMMUNITY PROPERTIES TRUST
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2008
 (Unaudited)
 
 
 (1)
              ORGANIZATION
 
 ACPT is a
self-managed holding company that is primarily engaged in the investment of
rental properties, property management services, community development, and
homebuilding.  These operations are concentrated in the Washington,
D.C. metropolitan area and Puerto Rico and are carried out through American
Rental Properties Trust ("ARPT"), American Rental Management Company ("ARMC "),
American Land Development U.S., Inc. ("ALD") and IGP Group Corp. ("IGP Group")
and their subsidiaries.
 ACPT is
taxed as a U.S. partnership and its taxable income flows through to its
shareholders.  ACPT is subject to Puerto Rico taxes on IGP Group’s
taxable income, generating foreign tax credits that have been passed through to
ACPT’s shareholders.  A federal tax regulation has been proposed that
could eliminate the pass through of these foreign tax credits to ACPT’s
shareholders.  Comments on the proposed regulation are currently being
evaluated with the final regulation expected to be effective for tax years
beginning after the final regulation is ultimately published in the Federal
Register. ACPT’s federal taxable income consists of certain passive income from
IGP Group, a controlled foreign corporation, distributions from IGP Group and
dividends from ACPT’s U.S. subsidiaries.  Other than Interstate
Commercial Properties (“ICP”), which is taxed as a Puerto Rico corporation, the
taxable income from the remaining Puerto Rico operating entities passes through
to IGP Group or ALD.  Of this taxable income, only the portion of
taxable income applicable to the profits, losses or gains on the residential
land sold in Parque Escorial passes through to ALD.  ALD, ARMC, and
ARPT are taxed as U.S. corporations.  The taxable income from the U.S.
apartment properties flows through to ARPT.
 
 (2)
              BASIS
      OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES
 
 Basis
of Presentation
 The
accompanying consolidated financial statements include the accounts of American
Community Properties Trust and its majority owned subsidiaries and partnerships,
after eliminating all intercompany transactions.  All of the entities
included in the consolidated financial statements are hereinafter referred to
collectively as the "Company" or "ACPT."
 The
Company consolidates entities that are not variable interest entities as defined
by Financial Accounting Standard Board (“FASB”) Interpretation No. 46 (revised
December 2003) (“FIN 46 (R)”) in which it owns, directly or indirectly, a
majority voting interest in the entity.  In addition, the Company
consolidates entities, regardless of ownership percentage, in which the Company
serves as the general partner and the limited partners do not have substantive
kick-out rights or substantive participation rights in accordance with Emerging
Issues Task Force Issue 04-05, "Determining Whether a General Partner, or the
General Partners as a Group, Controls a Limited Partnership or Similar Entity
When the Limited Partners Have Certain Rights," (“EITF 04-05”).  The
assets of consolidated real estate partnerships not 100% owned by the Company
are generally not available to pay creditors of the Company.
 The
consolidated group includes ACPT and its four major subsidiaries, American
Rental Properties Trust, American Rental Management Company, American Land
Development U.S., Inc., and IGP Group Corp.  In addition, the
consolidated group includes the following other entities:
 Alturas
      del Senorial Associates Limited Partnership
              
              Land
      Development Associates S.E.American
      Housing Management Company
              
              LDA
      Group, LLCAmerican
      Housing Properties L.P.
              
              Milford
      Station I, LLCBannister
      Associates Limited Partnership
              
              Milford
      Station II, LLCBayamon
      Garden Associates Limited Partnership
              
              Monserrate
      Associates Limited PartnershipCarolina
      Associates Limited Partnership S.E.
              
              New
      Forest Apartments, LLCCoachman's
      Apartments, LLC
              
              Nottingham
      South, LLCColinas
      de San Juan Associates Limited Partnership
              
              Owings
      Chase, LLCCrossland
      Associates Limited Partnership
              
              Palmer
      Apartments Associates Limited PartnershipEscorial
      Office Building I, Inc.
              
              Prescott
      Square, LLCEssex
      Apartments Associates Limited Partnership
              
              St.
      Charles Community, LLCFox
      Chase Apartments, LLC
              
              San
      Anton Associates S.E.Gleneagles
      Apartments, LLC
              
              Sheffield
      Greens Apartments, LLCHeaden
      House Associates Limited Partnership
              
              Torres
      del Escorial, Inc.Huntington
      Associates Limited Partnership
              
              Turabo
      Limited Dividend PartnershipInterstate
      Commercial Properties, Inc.
              
              Valle
      del Sol Associates Limited PartnershipInterstate
      General Properties Limited Partnership, S.E.
              
              Village
      Lake Apartments, LLCJardines
      de Caparra Associates Limited Partnership
              
              Wakefield
      Terrace Associates Limited PartnershipLancaster
      Apartments Limited Partnership
              
              Wakefield
      Third Age Associates Limited
Partnership
 The
Company's investments in entities that it does not control are recorded using
the equity method of accounting.  Refer to Note 3 for further
discussion regarding Investments in Unconsolidated Real Estate
Entities.
 
 -8-
 Table of Contents
 Interim
Financial Reporting
 These
unaudited financial statements have been prepared in accordance with accounting
principles generally accepted in the United States ("GAAP") for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in financial statements prepared in accordance with GAAP have
been condensed or omitted. The Company has no items of other comprehensive
income for any of the periods presented. In the opinion of management, these
unaudited financial statements reflect all adjustments (which are of a normal
recurring nature) necessary to present a fair statement of results for the
interim period. While management believes that the disclosures presented are
adequate to make the information not misleading, these financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report filed on Form 10-K for the year
ended December 31, 2007.  The operating results for the three months
ended June 30, 2008, and 2007, are not necessarily indicative of the results
that may be expected for the full year. Net income (loss) per share is
calculated based on weighted average shares outstanding.
 
 Use
of Estimates
 The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements, and accompanying notes and disclosures. These estimates
and assumptions are prepared using management's best judgment after considering
past and current events and economic conditions. Actual results could differ
from those estimates and assumptions.
 
 Sales,
Profit Recognition and Cost Capitalization
 In
accordance with Statement of Financial Accounting Standard (“SFAS”) No. 66,
“Accounting for Sales of Real Estate,” community development land sales are
recognized at closing only when sufficient down payments have been obtained and
initial and continuing investment criteria have been met, possession and other
attributes of ownership have been transferred to the buyer, and ACPT has no
significant continuing involvement.  Under the provisions of SFAS 66,
related to condominium sales, revenues and costs are to be recognized when
construction is beyond the preliminary stage, the buyer is committed to the
extent of being unable to require a refund except for non-delivery of the unit,
sufficient units in the project have been sold to ensure that the property will
not be converted to rental property, the sales proceeds are collectible and the
aggregate sales proceeds and the total cost of the project can be reasonably
estimated.  Accordingly we recognize revenues and costs upon
settlement with the homebuyer which doesn’t occur until after we receive use and
occupancy permits for the building.
 The costs
of developing the land are allocated to our land assets and charged to cost of
sales as the related inventories are sold using the relative sales value method
which rely on estimated costs and sales values.   In accordance
with SFAS 67 "Accounting for Costs and Initial Rental Operations of Real Estate
Projects", the costs of acquiring and developing land are allocated to these
assets and charged to cost of sales as the related inventories are sold. Within
our homebuilding operations, the costs of acquiring the land and construction of
the condominiums are allocated to these assets and charged to cost of sales as
the condominiums are sold.  The cost of sales is determined by the
percentage of completion method.  The Company considers interest
expense on all debt available for capitalization to the extent of average
qualifying assets for the period.  Interest specific to the
construction of qualifying assets, represented primarily by our recourse debt,
is first considered for capitalization.  To the extent qualifying
assets exceed debt specifically identified, a weighted average rate including
all other debt is applied.  Any excess interest is reflected as
interest expense.
 
 Impairment
of Long-Lived Assets
 ACPT
carries its rental properties, homebuilding inventory, land and development
costs at the lower of cost or fair value in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." For real estate assets such as our rental
properties which the Company plans to hold and use, which includes property to
be developed in the future, property currently under development and real estate
projects that are completed or substantially complete, we evaluate whether the
carrying amount of each of these assets will be recovered from their
undiscounted future cash flows arising from their use and eventual disposition.
If the carrying value were to be greater than the undiscounted future cash
flows, we would recognize an impairment loss to the extent the carrying amount
is not recoverable. Our estimates of the undiscounted operating cash flows
expected to be generated by each asset are performed on an individual project
basis and based on a number of assumptions that are subject to economic and
market uncertainties, including, among others, demand for apartment units,
competition, changes in market rental rates, and costs to operate and complete
each project. There have been no impairment charges for the six and three months
ended June 30, 2008 and 2007.
 The
Company evaluates, on an individual project basis, whether the carrying value of
its substantially completed real estate projects, such as our homebuilding
inventory that are to be sold, will be recovered based on the fair value less
cost to sell. If the carrying value were to be greater than the fair value less
costs to sell, we would recognize an impairment loss to the extent the carrying
amount is not recoverable. Our estimates of the fair value less costs to sell
are based on a number of assumptions that are subject to economic and market
uncertainties, including, among others, comparable sales, demand for commercial
and residential lots and competition. The Company performed similar reviews for
land held for future development and sale considering such factors as the cash
flows associated with future development expenditures. Should this evaluation
indicate an impairment has occurred, the Company will record an impairment
charge equal to the excess of the historical cost over fair value less costs to
sell.  There have been no impairment charges for the six
and three months ended June 30, 2008 and 2007.
 
 Depreciable
Assets and Depreciation
 The
Company's operating real estate is stated at cost and includes all costs related
to acquisitions, development and construction. The Company makes assessments of
the useful lives of our real estate assets for purposes of determining the
amount of depreciation expense to reflect on our income statement on an annual
basis. The assessments, all of which are judgmental determinations, are as
follows:
 
 -9-
 Table of Contents
 ·
              Buildings
      and improvements are depreciated over five to forty years using the
      straight-line or double declining balance
  methods,
 ·
              Furniture,
      fixtures and equipment are depreciated over five to seven years using the
      straight-line method,
 ·
              Leasehold
      improvements are capitalized and depreciated over the lesser of the life
      of the lease or their estimated useful
life,
 ·
              Maintenance
      and other repair costs are charged to operations as
    incurred.
 
 Operating
Real Estate
 The table
below presents the major classes of depreciable assets as of June 30, 2008 and
December 31, 2007 (in thousands):
 June
      30,
              
              
              December
      31,2008
              
              
              2007(Unaudited)
              
              
              (Audited)Building
              
              $
              265,538
              
              
              $
              265,115Building
      improvements
              
              
              10,494
              
              
              
              10,414Equipment
              
              
              14,621
              
              
              
              13,603290,653
              
              
              
              289,132Less:Accumulated
      depreciation
              
              
              155,130
              
              
              
              150,292135,532
              
              
              
              138,840Land
              
              
              25,512
              
              
              
              25,512Operating
      properties, net
              
              $
              161,035
              
              
              $
              164,352
 
 
 Other
Property and Equipment
 In
addition, the Company owned other property and equipment of $1,026,000 and
$1,045,000, net of accumulated depreciation of $2,451,000 and $2,294,000
respectively, as of June 30, 2008 and December 31, 2007
respectively.
 
 Depreciation
 Total
depreciation expense was $5,042,000 and $4,581,000 for the six months ended June
30, 2008 and 2007, respectively, and $2,445,000 and $2,397,000 for the three
months ended June 30, 2008 and 2007, respectively.
 
 Impact
of Recently Issued Accounting Standards
 
 SFAS
157 and 159
 In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements” and in
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.”  SFAS 157 defines fair values as
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants in the market in
which the reporting entity transacts. SFAS 157 applies whenever other standards
require assets or liabilities to be measured at fair value and does not expand
the use of fair value in any new circumstances. SFAS 157 establishes a hierarchy
that prioritizes the information used in developing fair value estimates. The
hierarchy gives the highest priority to quoted prices in active markets and the
lowest priority to unobservable data, such as the reporting entity’s own data.
SFAS 157 requires fair value measurements to be disclosed by level within the
fair value hierarchy.  On February 12, 2008, the FASB issued FASB
Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,”
which amends FAS No. 157 by delaying its effective date by one year for
non-financial assets and non-financial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis. Therefore, beginning on January 1, 2008, this standard applies
prospectively to new fair value measurements of financial instruments and
recurring fair value measurements of non-financial assets and non-financial
liabilities. On January 1, 2009, the standard will also apply to all other
fair value measurements.
 SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value.  The fair value election is designed to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions.  SFAS 159 was effective for the Company beginning January
1, 2008.  The implementation of SFAS 157 and 159 did not have a
material impact on our financial statements.
 
 SFAS
141R
 On
December 4, 2007, the FASB issued Statement No. 141R, “Business Combinations”
(“SFAS 141R”).  This statement changes the accounting for acquisitions
specifically eliminating the step acquisition model, changing the recognition of
contingent consideration from being recognized when it is probable to being
recognized at the time of acquisition, disallowing the capitalization of
transaction costs and delays when restructurings related to acquisitions can be
recognized. The standard is effective for fiscal years ending after December 15,
2008 and will only impact the accounting for acquisitions we make after its
adoption, except for certain amendments related to income taxes related to
acquisitions which will apply to business combinations with acquisition dates
before the effective dates of SFAS 141R.
  -10-
 Table of Contents
 SFAS
160
 On
December 4, 2007, the FASB issued Statement No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS
160”).  SFAS 160 replaces the concept of minority interest with
noncontrolling interests in subsidiaries.  Noncontrolling interests
will now be reported as a component of equity in the consolidated statement of
financial position.  Earnings attributable to noncontrolling interests
will continue to be reported as a part of consolidated earnings; however, SFAS
160 requires that income attributable to both controlling and noncontrolling
interests be presented separately on the face of the consolidated income
statement.  In addition, SFAS 160 provides that when losses
attributable to noncontrolling interests exceed the noncontrolling interest’s
basis, losses continue to be attributed to the noncontrolling interest as
opposed to being absorbed by the consolidating entity.  SFAS 160
requires retroactive adoption of the presentation and disclosure requirements
for existing minority interests. All other requirements of SFAS 160 shall be
applied prospectively.  SFAS 160 is effective for the first annual
reporting period beginning on or after December 15, 2008.  The Company
is currently evaluating the impact of the adoption of SFAS 160 on its
consolidated financial statements.  However, the provisions of SFAS
160 are directly applicable to the Company’s currently reported minority
interest in consolidated entities and, accordingly, will change the presentation
of the Company’s financial statements when implemented.
 
 EITF
Issue No. 06-08
 In
November 2006, the Emerging Issues Task force of the FASB (“EITF”) reached a
consensus on EITF Issue No. 06-08, “Applicability of a Buyer’s Continuing
Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for
Sales of Condominiums” (“EITF 06-08”).  EITF 06-08 requires
condominium sales to meet the continuing investment criterion in FAS No. 66 in
order for profit to be recognized under the percentage-of-completion
method.  EITF 06-08 was effective for the Company beginning January 1,
2008.  The implementation of EITF 06-08 did not have a material impact
on our financial statements.
 
 (3)
              INVESTMENT
      IN UNCONSOLIDATED REAL ESTATE
ENTITIES
 
 The
Company accounts for investments in unconsolidated real estate entities that are
not considered variable interest entities under FIN 46(R) in accordance with SOP
78-9 "Accounting for
Investments in Real Estate Ventures"and APB Opinion No. 18 "The Equity Method of Accounting for
Investments in Common Stock". For entities that are considered variable
interest entities under FIN 46(R), the Company performs an assessment to
determine the primary beneficiary of the entity as required by FIN 46(R). The
Company accounts for variable interest entities in which the Company is not a
primary beneficiary and does not bear a majority of the risk of expected loss in
accordance with the equity method of accounting.
 The
Company considers many factors in determining whether or not an investment
should be recorded under the equity method, such as economic and ownership
interests, authority to make decisions, and contractual and substantive
participating rights of the partners. Income and losses are recognized in
accordance with the terms of the partnership agreements and any guarantee
obligations or commitments for financial support. The Company's investments in
unconsolidated real estate entities accounted for under the equity method of
accounting currently consists of general partnership interests in two limited
partnerships which own apartment properties in the United States; a limited
partnership interest in a limited partnership that owns a commercial property in
Puerto Rico; and a 50% ownership interest in a joint venture formed as a limited
liability company.
 
 Apartment
Partnerships
 The
unconsolidated apartment partnerships as of June 30, 2008 and 2007 included
Brookside Gardens Limited Partnership (“Brookside”) and Lakeside Apartments
Limited Partnership (“Lakeside”) which collectively represent 110 rental
units.  We have determined that these two entities are variable
interest entities under FIN 46(R).  However, the Company is not
required to consolidate the partnerships due to the fact that it is not the
primary beneficiary and does not bear the majority of the risk of expected
losses. The Company holds a nominal (1% or less) economic interest in Brookside
and Lakeside but, as a general partner, we have significant influence over
operations of these entities that is disproportionate to our economic
ownership.  In accordance with SOP 78-9 and APB No. 18, these
investments are accounted for under the equity method.  The Company is
exposed to losses consisting of our net investment, loans and unpaid fees for
Brookside of $239,000 and $231,000 and for Lakeside of $163,000 and $172,000 as
of June 30, 2008 and December 31, 2007, respectively.  All amounts are
fully reserved. Pursuant to the partnership agreement for Brookside, the
Company, as general partner, is responsible for providing operating deficit
loans to the partnership in the event that it is not able to generate sufficient
cash flows from its operating activities.
 
 -11-
 Table of Contents
 Commercial
Partnerships
 The
Company holds a limited partner interest in a commercial property in Puerto Rico
that it accounts for under the equity method of accounting.  ELI, S.E.
("ELI"), is a partnership formed for the purpose of constructing a building for
lease to the State Insurance Fund of the Government of Puerto
Rico.  ACPT contributed the land in exchange for $700,000 and a 27.82%
ownership interest in the partnership's assets, equal to a 45.26% interest in
cash flow generated by the thirty-year lease of the building.
 On April
30, 2004, the Company purchased a 50% limited partnership interest in El Monte
Properties, S.E. ("El Monte") from Insular Properties Limited Partnership
("Insular") for $1,462,500. Insular is owned by the J. Michael Wilson Family, a
related party. In December 2004, a third party buyer purchased El Monte for
$20,000,000, $17,000,000 in cash and $3,000,000 in notes. The net cash proceeds
from the sale of the real estate were distributed to the partners. As a result,
the Company received $2,500,000 in cash and recognized $986,000 of income in
2004. The gain on sale was reduced by the amount of the seller's note which is
subject to future subordination. In January 2005, El Monte distributed the notes
to the partners whereby the Company received a $1,500,000 note.  The
Company determined that the cost recovery method of accounting was appropriate
for this transaction and accordingly, deferred revenue recognition on this note
until cash payment was received.  In January 2007, the Company
received $1,707,000, equal to the full principal amount due plus all accrued
interest outstanding and, accordingly, recognized $1,500,000 of equity in
earnings from unconsolidated entities and $207,000 of interest
income.  The Company has no required funding obligations and
management expects to wind up El Monte’s affairs during 2008.
  Land
Development Joint Venture
 In
September 2004, the Company entered into a joint venture agreement with Lennar
Corporation for the development of a 352-unit, active adult community located in
St. Charles, Maryland.  The Company manages the project's development
for a market rate fee pursuant to a management agreement.  In
September 2004, the Company transferred land to the joint venture in exchange
for a 50% ownership interest and $4,277,000 in cash.  The Company's
investment in the joint venture was recorded at 50% of the historical cost basis
of the land with the other 50% recorded within our deferred charges and other
assets.  The proceeds received are reflected as deferred revenue. The
deferred revenue and related deferred costs will be recognized into income as
the joint venture sells lots to Lennar.  In March 2005, the joint
venture closed a non-recourse development loan, which was amended in June 2006,
December 2006 and again in October 2007.  Included within these
amendments, the maximum borrowings outstanding on the facility were reduced to
$5.0 million.  For the October 2007 amendment, the development loan
was modified to provide a one-year delay in development of the project, as to
date, lot development has outpaced sales.  Per the terms of the loan,
both the Company and Lennar provided development completion guarantees.  In
the six and three months ended June 30, 2008, the joint venture did not sell any
lots.  In the six and three months ended June 30, 2007, the joint
venture sold 30 and 16 lots to Lennar and recognized $655,000 and $363,000 in
deferred revenue, off-site fees and management fees and $218,000 and $125,000 of
deferred costs, respectively.
 The
following table summarizes the financial data and principal activities of the
unconsolidated real estate entities, which the Company accounts for under the
equity method.  The information is presented to segregate the
apartment partnerships from the commercial partnerships as well as our 50%
ownership interest in the land development joint venture, which are all
accounted for as “investments in unconsolidated real estate entities” on the
balance sheets.
  -12-
 Table of Contents
 
 LandDevelopmentApartment
              
              
              Commercial
              
              
              JointProperties
              
              
              Property
              
              
              Venture
              
              
              Total(in
      thousands)Summary
      Financial Position:Total
      AssetsJune
      30, 2008
              
              $
              4,874
              
              
              $
              27,512
              
              
              $
              12,555
              
              
              $
              44,941December
      31, 2007
              
              
              4,980
              
              
              
              27,379
              
              
              
              12,397
              
              
              
              44,756Total
      Non-Recourse DebtJune
      30, 2008
              
              
              3,150
              
              
              
              22,960
              
              
              
              4,879
              
              
              
              30,989December
      31, 2007
              
              
              3,189
              
              
              
              22,960
              
              
              
              4,722
              
              
              
              30,871Total
      Other LiabilitiesJune
      30, 2008
              
              
              976
              
              
              
              144
              
              
              
              743
              
              
              
              1,863December
      31, 2007
              
              
              976
              
              
              
              147
              
              
              
              741
              
              
              
              1,864Total
      EquityJune
      30, 2008
              
              
              748
              
              
              
              4,408
              
              
              
              6,933
              
              
              
              12,089December
      31, 2007
              
              
              815
              
              
              
              4,272
              
              
              
              6,934
              
              
              
              12,021Company's
      Investment, net (1)June
      30, 2008
              
              
              -
              
              
              
              4,681
              
              
              
              1,828
              
              
              
              6,509December
      31, 2007
              
              
              (1
              )
              
              
              4,701
              
              
              
              1,828
              
              
              
              6,528Summary
      of Operations:Total
      RevenueSix
      Months Ended June 30, 2008
              
              $
              418
              
              
              $
              1,789
              
              
              $
              -
              
              
              $
              2,207Six
      Months Ended June 30, 2007
              
              
              401
              
              
              
              1,821
              
              
              
              3,609
              
              
              
              5,831Three
      Months Ended June 30, 2008
              
              
              210
              
              
              
              893
              
              
              
              -
              
              
              
              1,103Three
      Months Ended June 30, 2007
              
              
              231
              
              
              
              912
              
              
              
              1,735
              
              
              
              2,878Net
      IncomeSix
      Months Ended June 30, 2008
              
              
              (67
              )
              
              
              909
              
              
              
              -
              
              
              
              842Six
      Months Ended June 30, 2007
              
              
              (97
              )
              
              
              937
              
              
              
              3
              
              
              
              843Three
      Months Ended June 30, 2008
              
              
              (32
              )
              
              
              453
              
              
              
              -
              
              
              
              421Three
      Months Ended June 30, 2007
              
              
              (58
              )
              
              
              469
              
              
              
              3
              
              
              
              414Company's
      recognition of equity in earningsSix
      Months Ended June 30, 2008
              
              
              -
              
              
              
              331
              
              
              
              -
              
              
              
              331Six
      Months Ended June 30, 2007
              
              
              (1
              )
              
              
              346
              
              
              
              -
              
              
              
              345Three
      Months Ended June 30, 2008
              
              
              -
              
              
              
              163
              
              
              
              -
              
              
              
              163Three
      Months Ended June 30, 2007 (2)
              
              
              (1
              )
              
              
              173
              
              
              
              -
              
              
              
              172Summary
      of Cash Flows:Cash
      flows from operating activitiesSix
      Months Ended June 30, 2008
              
              
              49
              
              
              
              977
              
              
              
              1
              
              
              
              1,027Six
      Months Ended June 30, 2007
              
              
              50
              
              
              
              845
              
              
              
              3,149
              
              
              
              4,044Three
      Months Ended June 30, 2008
              
              
              44
              
              
              
              58
              
              
              
              7
              
              
              
              109Three
      Months Ended June 30, 2007
              
              
              16
              
              
              
              (17
              )
              
              
              1,791
              
              
              
              1,790Company's
      share of cash flows from operating activitiesSix
      Months Ended June 30, 2008
              
              
              -
              
              
              
              442
              
              
              
              1
              
              
              
              443Six
      Months Ended June 30, 2007
              
              
              1
              
              
              
              382
              
              
              
              1,575
              
              
              
              1,958Three
      Months Ended June 30, 2008
              
              
              -
              
              
              
              26
              
              
              
              4
              
              
              
              30Three
      Months Ended June 30, 2007
              
              
              1
              
              
              
              (8
              )
              
              
              896
              
              
              
              889Operating
      cash distributionsSix
      Months Ended June 30, 2008
              
              
              -
              
              
              
              773
              
              
              
              -
              
              
              
              773Six
      Months Ended June 30, 2007
              
              
              -
              
              
              
              794
              
              
              
              -
              
              
              
              794Three
      Months Ended June 30, 2008
              
              
              -
              
              
              
              386
              
              
              
              -
              
              
              
              386Three
      Months Ended June 30, 2007
              
              
              -
              
              
              
              383
              
              
              
              -
              
              
              
              383Company's
      share of operating cash distributionsSix
      Months Ended June 30, 2008
              
              
              -
              
              
              
              351
              
              
              
              -
              
              
              
              351Six
      Months Ended June 30, 2007
              
              
              -
              
              
              
              360
              
              
              
              -
              
              
              
              360Three
      Months Ended June 30, 2008
              
              
              -
              
              
              
              175
              
              
              
              -
              
              
              
              175Three
      Months Ended June 30, 2007
              
              
              -
              
              
              
              174
              
              
              
              -
              
              
              
              174
 -13-
 Table of Contents
 Notes:
 (1)  Represents
the Company's net investment, including assets and accrued liabilities in the
consolidated balance sheet for
 unconsolidated
real estate entities.
 (2)  Excludes
collection of the El Monte note receivable, resulting in recognition of $1.5
million as Equity in Earnings, see Note 6.
 
 (4)
              DEBT
 
 The
Company's outstanding debt is collateralized primarily by land, land
improvements, receivables, investment properties, investments in partnerships,
and rental properties.  The following table summarizes the
indebtedness of the Company at June 30, 2008 and December 31, 2007 (in
thousands):
 
 Maturity
              
              
              Interest
              
              
              Outstanding
      as ofDates
              
              
              Rates
              
              
              June
      30,
              
              
              December
      31,From/To
              
              
              From/To
              
              
              2008
              
              
              2007(Unaudited)
              
              
              (Audited)Recourse
      DebtCommunity
      Development (a), ( b), (c), (d)
              
              08-31-09/03-01-23
              
              
              4%/8%
              
              
              $
              28,925
              
              
              $
              25,490General
      obligations (e)
              
              06-01-09/01-01-12
              
              
              Non-interestbearing/8.10%
              
              
              
              202
              
              
              
              99Total
      Recourse Debt
              
              
              
              
              
              
              
              
              
              
              29,127
              
              
              
              25,589Non-Recourse
      DebtInvestment
      Properties (f)(g)
              
              04-30-09/08-01-47
              
              
              4.95%/10%
              
              
              
              278,085
              
              
              
              279,981Total
      debt
              
              
              
              
              
              
              
              
              
              $
              307,212
              
              
              $
              305,570
 
 a)
              As
      of June 30, 2008, $26,027,000 of the community development recourse debt
      relates to the general obligation bonds issued by the Charles County
      government as described in detail under the heading "Financial
      Commitments" in Note 5.
 b)
              On
      April 14, 2006, the Company closed a three year $14,000,000 revolving
      acquisition and development line of credit loan (“the Revolver”) secured
      by a first lien deed of trust on property located in St. Charles,
      MD.  The maximum amount of the loan at any one time is
      $14,000,000.  The facility includes various sub-limits on a
      revolving basis for amounts to finance apartment project acquisitions and
      land development in St. Charles.  The terms require certain
      financial covenants to be calculated annually as of December 31, including
      a tangible net worth to senior debt ratio for ALD and a minimum net worth
      test for ACPT.  As of June 30, 2008 no amounts were outstanding
      on the Revolver.
 c)
              On
      September 1, 2006, LDA secured a revolving line of credit
      facility.  The line of credit bears interest at a fluctuating
      rate equivalent to the LIBOR Rate plus 200 basis points (4.68% at June 30,
      2008).  The Company recently extended the maturity date for this
      facility from August 31, 2008 to August 31, 2009.  As part of
      the extension, the Company agreed to an increased rate equal to the LIBOR
      Rate plus 225 basis points beginning July 1, 2008, a reduction of the
      overall facility from $15,000,000 to $10,000,000 and to use the credit
      facility for the development of infrastructure in Parque Escorial and
      Parque El Comandante.  The outstanding balance of this facility
      on June 30, 2008, was $1,775,000.
 d)
              On
      April 2, 2008, the Company secured a two-year, $3,600,000 construction
      loan for the construction of a commercial restaurant/office building
      within the O’Donnell Lake Restaurant Park.  The facility is
      secured by the land along with any improvements constructed and bears
      interest at Wall Street Journal published Prime Rate (5.0% at June 30,
      2008).  At the end of the two-year construction period, the
      Company may convert the loan to a 5 year permanent loan, amortized over a
      30 year period at a fixed interest rate to be determined.  As of
      June 30, 2008, $1,123,000 was outstanding under this facility leaving
      $2,477,000 available to fund completion of the
  building.
 e)
              The
      general recourse debt outstanding as of June 30, 2008, is made up of
      various capital leases outstanding within our U.S. and Puerto Rico
      operations, as well as installment loans for vehicles and other
      miscellaneous equipment.
 f)
              The
      non-recourse debt related to the investment properties is collateralized
      by the multifamily rental properties and the office building in Parque
      Escorial.  As of June 31, 2008, approximately $74,179,000 of
      this debt is secured by the Federal Housing Administration ("FHA") or the
      Maryland Housing Fund.
 g)
              On
      May 12, 2008, IGP agreed to provide a fixed charge and debt service
      guaranty related to the Escorial Office Building I, Inc (“EOB”)
      mortgage.  The fixed charge and debt service guaranty requires
      IGP to contribute capital in cash in such amounts required to cause EOB to
      comply with the related financial covenants.  The guarantee will
      remain in full force until EOB has complied with the financial covenants
      for four consecutive quarters.
 
 The
Company’s loans contain various financial, cross collateral, cross default,
technical and restrictive provisions.  As of June 30, 2008, the
Company was in compliance with the financial covenants and the other provisions
of its loan agreements.
 
 -14-
 Table of Contents
 (5)
              COMMITMENTS
      AND CONTINGENT LIABILITIES
 
 Financial
Commitments
 Pursuant
to an agreement reached between ACPT and the Charles County Commissioners in
2002, the Company agreed to accelerate the construction of two major roadway
links to the Charles County (the "County") road system. As part of the
agreement, the County agreed to issue general obligation public improvement
Bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by
letters of credit provided by Lennar as part of a residential lot sales contract
for 1,950 lots in Fairway Village.  The Bonds were issued in three
installments with the final $6,000,000 installment issued in March 2006. 
The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime rate
for total Bonds issued to date of 5.1%, and call for semi-annual interest
payments and annual principal payments and mature in fifteen
years.  Under the terms of bond repayment agreements between the
Company and the County, the Company is obligated to pay interest and principal
on the full amount of the Bonds; as such, the Company recorded the full amount
of the debt and a receivable from the County representing the undisbursed Bond
proceeds to be advanced to the Company as major infrastructure development
within the project occurs.  As of June 30, 2008, all of the bond
proceeds had been used to fund the specified development.  As part of
the agreement, the Company will pay the County a monthly payment equal to
one-sixth of the semi-annual interest payments and one-twelfth of the annual
principal payment due on the Bonds.  The County also requires ACPT to
fund an escrow account from lot sales that will be used to repay this
obligation.
 In August
2005, the Company signed a memorandum of understanding ("MOU") with the Charles
County Commissioners regarding a land donation that is now the site of a minor
league baseball stadium and entertainment complex which opened in May of
2008.  Under the terms of the MOU, the Company donated 42 acres of
land in St. Charles to the County on December 31, 2005. The Company also agreed
to expedite off-site utilities, storm-water management and road construction
improvements that will serve the entertainment complex and future portions of
St. Charles so that the improvements will be completed concurrently with the
entertainment complex.  The County will be responsible for
infrastructure improvements on the site of the complex. In return, the County
agreed to issue general obligation bonds to finance the infrastructure
improvements.  In March 2006, $4,000,000 of bonds were issued for this
project, with an additional $3,000,000 issued in both March 2007 and March
2008.  As of June 30, 2008, $3,489,000 of these bond proceeds are
recorded as a receivable and available to fund the related
infrastructure.  The funds provided by the County for this project
will be repaid by ACPT over a 15-year period.  In addition, the County
agreed to issue an additional 100 school allocations a year to St. Charles
commencing with the issuance of bonds.
 During
2006, the Company reached an agreement with Charles County whereby the Company
receives interest payments on any undistributed bond proceeds held in escrow by
the County.  The agreement covers the period from July 1, 2005 through
the last draw made by the Company.
 As of June 30, 2008,
ACPT is guarantor of $22,990,000 of surety bonds for the completion of land
development projects with Charles County; substantially all are for the benefit
of the Charles County Commissioners.
 
 Consulting
Agreement and Arrangement
 ACPT
entered into a consulting and retirement compensation agreement with Interstate
General Company L.P.’s (“IGC”) founder and Chief Executive Officer, James J.
Wilson, effective October 5, 1998 (the "Consulting Agreement").  IGC
was the predecessor company to ACPT.  Under the terms of the
Consulting Agreement, the Company will pay Mr. Wilson $200,000 per year through
September 2008.
 
 Guarantees
 ACPT and
its subsidiaries typically provide guarantees for another subsidiary's loans. In
many cases more than one company guarantees the same debt. Since all of these
companies are consolidated, the debt or other financial commitment made by the
subsidiaries to third parties and guaranteed by ACPT, is included within ACPT's
consolidated financial statements.  As of June 30, 2008, ACPT has
guaranteed $26,027,000 of outstanding debt owed by its
subsidiaries.  IGP has guaranteed $1,775,000 of its subsidiaries'
outstanding debt.  The guarantees will remain in effect until the debt
service is fully repaid by the respective borrowing subsidiary.  The
terms of the debt service guarantees outstanding range from one to nine
years.  In addition to debt service guarantees, both the Company and
Lennar provided development completion guarantees related to the St. Charles
Active Adult Community Joint Venture.  We do not expect any of these
guarantees to impair the individual subsidiary or the Company's ability to
conduct business or to pursue its future development plans.
 
 Legal
Matters
 In late
November 2006, several subsidiaries of the Company (LDA, IGP and IGP Group) were
named in a lawsuit filed by Jalexis, Inc. (“Jalexis”).  The lawsuit
claims damages for more than $15 million allegedly suffered due to faulty
subsoil conditions in a piece of land within the master plan of Parque Escorial
(“Lot I-13W”).  Settlement of Lot I-13W occurred on April 29, 2005
under an option agreement dated April 19, 2004.  Jalexis purchased Lot
I-13W from LDA for approximately $7.5 million, which represented 12% of our
total consolidated revenues for 2005.  In the purchase agreement, LDA
did not make any representations or warranties with regard to the soil and
subsoil conditions as Lot I-13W was sold to Jalexis “as is” and “where
is”.  On June 5, 2008, the Company entered into a right of first offer
agreement with Jalexis, providing Jalexis with the right to make the first offer
on future land sales within certain Offered Properties as defined by the
agreement.  On June 6, 2008, the plaintiff dismissed with prejudice
the complaint contained in the lawsuit.  All parties involved in the
case signed a stipulation in which each party agreed to relieve one another
mutually and in perpetuity of any and all claims which they might have against
one another arising from the facts alleged in the present lawsuit.
 There
have been no other material changes to the legal proceedings previously
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2007.
  -15-
 Table of Contents
 The
Company and/or its subsidiaries have been named as defendants, along with other
companies, in tenant-related lawsuits. The Company carries liability insurance
against certain types of claims that management believes meets industry
standards.  To date, payments made to the plaintiffs of the settled
cases were covered by our insurance policy.  The Company believes it has
strong defenses to the claims, and intends to continue to defend itself
vigorously in these matters.
 In the
normal course of business, ACPT is involved in various pending or unasserted
claims. In the opinion of management, these are not expected to have a material
impact on the financial condition or future operations of
ACPT.
 
 (6)
              RELATED
      PARTY TRANSACTIONS
 
 Certain
officers and trustees of ACPT conduct business with or have ownership interests
in various entities that conduct business with the Company.  The
financial impact of the related party transactions on the accompanying
consolidated financial statements is reflected below (in
thousands):
 
 CONSOLIDATED
      STATEMENT OF INCOME:
              
              
              
              
              Six
      Months Ended
              
              
              Three
      Months EndedJune
      30,
              
              
              June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Management and Other FeesUnconsolidated
      subsidiaries with third party partners
              
              (A)
              
              
              $
              21
              
              
              $
              21
              
              
              $
              11
              
              
              $
              11Affiliates
      of J. Michael Wilson, CEO and Chairman
              
              
              
              
              
              -
              
              
              
              43
              
              
              
              -
              
              
              
              -$
              21
              
              
              $
              64
              
              
              $
              11
              
              
              $
              11Rental Property Revenues
              
              (B)
              
              
              $
              30
              
              
              $
              28
              
              
              $
              15
              
              
              $
              14Interest and Other IncomeUnconsolidated
      real estate entities with third party partners
              
              
              
              
              $
              4
              
              
              $
              4
              
              
              $
              2
              
              
              $
              2General and Administrative
      ExpenseReserve
      additions (reductions) and other write-offs-Unconsolidated
      real estate entities with third party partners
              
              (A)
              
              
              $
              (9
              )
              
              $
              11
              
              
              $
              13
              
              
              $
              7Reimbursement
      to IBC for ACPT's share of J. Michael Wilson's
compensation
              
              
              
              
              
              207
              
              
              
              195
              
              
              
              103
              
              
              
              97Reimbursement
      of administrative costs-Affiliates
      of J. Michael Wilson, CEO and Chairman
              
              
              
              
              
              (10
              )
              
              
              (13
              )
              
              
              (5
              )
              
              
              (7
              )Reimbursement
      of legal fees to attorney for J. Michael Wilson
              
              (C3)
              
              
              
              
              
              
              48
              
              
              
              
              
              
              
              48Consulting
      FeesJames
      J. Wilson, IGC Chairman and Director
              
              (C1)
              
              
              100
              
              
              
              100
              
              
              
              50
              
              
              
              50Thomas
      J. Shafer, Trustee
              
              (C2)
              
              
              30
              
              
              
              30
              
              
              
              15
              
              
              
              15$
              318
              
              
              $
              371
              
              
              $
              176
              
              
              $
              210BALANCE
      SHEET:
              
              
              
              
              
              Balance
              
              
              BalanceJune
      30,
              
              
              December
      31,2008
              
              
              2007Other AssetsReceivables
      - All unsecured and due on demandUnconsolidated
      Subsidiaries
              
              
              
              
              
              $
              8
              
              
              $
              -Affiliate
      of J. Michael Wilson, CEO and Chairman
              
              
              
              
              
              
              14
              
              
              
              5Total
              
              
              
              
              
              $
              22
              
              
              $
              5Other LiabilitiesPayable
      due to Affiliate of J. Michael Wilson, CEO and Chairman
              
              
              
              
              
              $
              74
              
              
              $
              -
 
 -16-
 Table of Contents
 (A)           Management
and Other Services
 The
Company provides management and other support services to its unconsolidated
subsidiaries and other affiliated entities in the normal course of
business.  The fees earned from these services are typically collected
on a monthly basis, one month in arrears.  Receivables are unsecured
and due on demand.  Certain partnerships experiencing cash shortfalls
have not paid timely.  Generally, receivable balances of these
partnerships are fully reserved, until satisfied or the prospect of
collectibility improves. The collectibility of management fee receivables is
evaluated quarterly.  Any increase or decrease in the reserves is
reflected accordingly as additional bad debt expenses or recovery of such
expenses.
 At the
end of February 2007, G.L. Limited Partnership, which was owned by affiliates of
J. Michael Wilson, was sold to a third party.  Accordingly, we are no
longer the management agent for this property effective March 1,
2007.  Management fees generated by this property accounted for less
than 1% of the Company’s total revenue.
 
 (B)                      Rental
Property Revenue
 On
September 1, 2006, the Company, through one of its Puerto Rican subsidiaries,
Escorial Office Building I, Inc. (“Landlord”), executed a lease with Caribe
Waste Technologies, Inc. (“CWT”), a company owned by the J. Michael Wilson
Family.  The lease provides for 1,842 square feet of office space to
be leased by CWT for five years at $19.00 per rentable square
foot.  The
 company
provided CWT with an allowance of $9,000 in tenant improvements which are being
amortized over the life of the lease.  On February 25, 2008, CWT
exercised its rights under the lease and provided six months written notice of
its intention to terminate the lease, effective August 24,
2008.   The lease agreement is unconditionally guaranteed by
Interstate Business Corporation (“IBC”), a company owned by the J. Michael
Wilson Family.
 
 (C)           Other
 Other
transactions with related parties are as follows:
 
 1)
              Represents
      fees paid to James J. Wilson pursuant to a consulting and retirement
      agreement.  At Mr. Wilson's request, payments are made to
      Interstate Waste Technologies, Inc.
 2)
              Represents
      fees paid to Thomas J. Shafer, a trustee, pursuant to a consulting
      agreement.
 3)
              In
      second quarter 2007, The Independent Trustees concluded that certain legal
      fees and expenses incurred by J. Michael Wilson related to seeking a
      strategic partner would be reimbursed by the Company.  The
      Independent Trustees authorized the Company to fund up to $225,000 of such
      costs, $48,000 of which were incurred in the second quarter
      2007.
 
 Related Party
Acquisitions
 
 El
Monte
 On April
30, 2004, the Company purchased a 50% limited partnership interest in El Monte
Properties S.E. ("El Monte") from Insular Properties Limited Partnership
("Insular") for $1,462,500.  Insular is owned by the J. Michael Wilson
Family.  Per the terms of the agreement, the Company was responsible
to fund $400,000 of capital improvements and lease stabilization costs, and had
a priority on cash distributions up to its advances plus accrued interest at 8%,
investment and a 13% cumulative preferred return on its
investment.  The purchase price was based on a third party appraisal
of $16,500,000 dated April 22, 2003. The Company's limited partnership
investment was accounted for under the equity method of accounting.
 In
December 2004, a third party buyer purchased El Monte for
$20,000,000:  $17,000,000 in cash and $3,000,000 in two notes of
$1,500,000 each that bear an interest rate of prime plus 2%, with a ceiling of
9%, and mature on December 3, 2009.  The net cash proceeds from the
sale of the real estate were distributed to the partners.  As a
result, the Company received $2,500,000 in cash and recognized $986,000 of
income in 2004.  El Monte distributed a $1,500,000 note to the Company
in January 2005.  On January 24, 2007, the Company received $1,707,000
as payment in full of the principal balance and all accrued interest related to
the El Monte note receivable.  Accordingly, in 2007 the Company
recorded $1,500,000 as equity in earnings and $207,000 as interest
income.
   -17-
 Table of Contents
 (7)
              INCOME
      TAXES
 
 The total
amount of unrecognized tax benefits as of June 30, 2008, was
$14,611,000.  Included in the balance at June 30, 2008, were $42,000
of tax positions that, if recognized, would affect the effective tax
rate.  A reconciliation of the beginning and ending amount of
unrecognized tax benefit (in thousands) is as follows:
  Unrecognized
      tax benefit at beginning of period (December 31, 2007)
              
              $
              14,869Change
      attributable to tax positions taken during a prior period
              
              
              (258
              )Change
      attributable to tax positions taken during the current
    period
              
              
              -Decrease
      attributable to settlements with taxing authorities
              
              
              -Decrease
      attributable to lapse of statute of limitations
              
              
              -Unrecognized
      tax benefit at end of period (June 30, 2008)
              
              $
              14,611
 
 In
accordance with our accounting policy, we present accrued interest related to
uncertain tax positions as a component of interest expense and accrued penalties
as a component of income tax expense on the Consolidated Statement of
Income.  Our Consolidated Statements of Income for the six months
ended June 30, 2008 and 2007, included interest expense of $733,000 and
$551,000, respectively and penalties of $38,000 and $72,000,
respectively.  Our Consolidated Statements of Income for the three
months ended June 30, 2008 and 2007, included interest expense of $398,000 and
$282,000, respectively and penalties of $14,000 and $14,000,
respectively.  Our Consolidated Balance Sheets as of June 30, 2008 and
December 31, 2007, included accrued interest of $3,546,000 and $2,814,000,
respectively and accrued penalties of $1,124,000 and $1,085,000,
respectively.
 The
Company currently does not have any tax returns under audit by the United States
Internal Revenue Service or the Puerto Rico Treasury
Department.  However, the tax returns filed in the Unites States for
the years ended December 31, 2004 through 2007 remain subject to
examination.  For Puerto Rico, the tax returns for the years ended
December 31, 2003 through 2007 remain subject to examination.  Within
the next twelve months, the Company does not anticipate any payments related to
settlement of any tax examinations.  There is a reasonable possibility
within the next twelve months the amount of unrecognized tax benefits will
decrease by $567,000 when the related statutes of limitations expire and certain
payments are recognized as taxable income.
 
 (8)
              SEGMENT
      INFORMATION
 
 ACPT has
two reportable segments: U.S. operations and Puerto Rico operations. The
Company's chief decision-makers allocate resources and evaluate the Company's
performance based on these two segments. The U.S. segment is comprised of
different
 components
grouped by product type or service, to include:  investments in rental
properties, community development and property management services. The Puerto
Rico segment entails the following components: investment in rental properties,
community development, homebuilding and property management
services.  The accounting policies of the segments are the same as
those described in the summary of significant accounting policies.
 
 Customer
Dependence
 Residential
land sales to Lennar within our U.S. segment were $5,691,000 for the six months
ended June 30, 2008, which represents 22% of the U.S. segment's revenue and 14%
of our total year-to-date consolidated revenue.  No other customers
accounted for more than 10% of our consolidated revenue for the six months ended
June 30, 2008.
 Residential
land sales to Lennar within our U.S. segment were $3,309,000 for the six months
ended June 30, 2007 which represented 13% of the U.S. segment's revenue and 8%
of our total year-to-date consolidated revenue.  No customers
accounted for more than 10% of our consolidated revenue for the six months ended
June 30, 2007.
  -18-
 Table of Contents
  The
following presents the segment information for the six and three months ended
June 30, 2008 and 2007 (in thousands):
 United
              
              
              Puerto
              
              
              Inter-States
              
              
              Rico
              
              
              Segment
              
              
              TotalSix
      Months Ended June 30, 2008 (Unaudited):
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)Rental
      property revenues
              
              
              19,694
              
              
              
              11,243
              
              
              
              -
              
              
              
              30,937Rental
      property operating expenses
              
              
              9,224
              
              
              
              5,704
              
              
              
              (11
              )
              
              
              14,917Land
      sales revenue
              
              
              5,997
              
              
              
              -
              
              
              
              -
              
              
              
              5,997Cost
      of land sales
              
              
              4,725
              
              
              
              -
              
              
              
              -
              
              
              
              4,725Home
      sales revenue
              
              
              -
              
              
              
              2,982
              
              
              
              -
              
              
              
              2,982Cost
      of home sales
              
              
              -
              
              
              
              2,300
              
              
              
              -
              
              
              
              2,300Management
      and other fees
              
              
              79
              
              
              
              314
              
              
              
              (13
              )
              
              
              380General,
      administrative, selling and marketing expense
              
              
              4,779
              
              
              
              1,273
              
              
              
              (3
              )
              
              
              6,049Depreciation
      and amortization
              
              
              3,159
              
              
              
              1,883
              
              
              
              -
              
              
              
              5,042Operating
      income
              
              
              3,883
              
              
              
              3,379
              
              
              
              1
              
              
              
              7,263Interest
      income
              
              
              229
              
              
              
              17
              
              
              
              (14
              )
              
              
              232Equity
      in earnings from unconsolidated entities
              
              
              -
              
              
              
              331
              
              
              
              -
              
              
              
              331Interest
      expense
              
              
              5,684
              
              
              
              2,886
              
              
              
              (14
              )
              
              
              8,556Minority
      interest in consolidated entities
              
              
              123
              
              
              
              1,198
              
              
              
              -
              
              
              
              1,321Loss
      before benefit for income taxes
              
              
              (1,682
              )
              
              
              (239
              )
              
              
              -
              
              
              
              (1,921
              )Income
      tax benefit
              
              
              (419
              )
              
              
              (131
              )
              
              
              -
              
              
              
              (550
              )Net
      loss
              
              
              (1,263
              )
              
              
              (108
              )
              
              
              -
              
              
              
              (1,371
              )Gross
      profit on land sale
              
              
              1,272
              
              
              
              -
              
              
              
              -
              
              
              
              1,272Gross
      profit on home sales
              
              
              -
              
              
              
              682
              
              
              
              -
              
              
              
              682Total
      assets
              
              
              261,835
              
              
              
              98,195
              
              
              
              (369
              )
              
              
              359,661Additions
      to long lived assets
              
              
              2,721
              
              
              
              481
              
              
              
              -
              
              
              
              3,202
  United
                
                
                Puerto
                
                
                Inter-States
                
                
                Rico
                
                
                Segment
                
                
                TotalSix
      Months Ended June 30, 2007 (Unaudited):
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)Rental
      property revenues
                
                
                18,706
                
                
                
                11,126
                
                
                
                -
                
                
                
                29,832Rental
      property operating expenses
                
                
                9,489
                
                
                
                5,638
                
                
                
                (13
                )
                
                
                15,114Land
      sales revenue
                
                
                5,969
                
                
                
                -
                
                
                
                -
                
                
                
                5,969Cost
      of land sales
                
                
                4,356
                
                
                
                -
                
                
                
                -
                
                
                
                4,356Home
      sales revenue
                
                
                -
                
                
                
                5,214
                
                
                
                -
                
                
                
                5,214Cost
      of home sales
                
                
                -
                
                
                
                3,816
                
                
                
                -
                
                
                
                3,816Management
      and other fees
                
                
                208
                
                
                
                313
                
                
                
                (15
                )
                
                
                506General,
      administrative, selling and marketing expense
                
                
                3,923
                
                
                
                1,448
                
                
                
                (3
                )
                
                
                5,368Depreciation
      and amortization
                
                
                2,745
                
                
                
                1,836
                
                
                
                -
                
                
                
                4,581Operating
      income
                
                
                4,370
                
                
                
                3,915
                
                
                
                1
                
                
                
                8,286Interest
      income
                
                
                591
                
                
                
                226
                
                
                
                (55
                )
                
                
                762Equity
      in earnings from unconsolidated entities
                
                
                (1
                )
                
                
                1,846
                
                
                
                -
                
                
                
                1,845Interest
      expense
                
                
                6,226
                
                
                
                3,166
                
                
                
                (55
                )
                
                
                9,337Minority
      interest in consolidated entities
                
                
                173
                
                
                
                1,384
                
                
                
                -
                
                
                
                1,557(Loss)
      income before (benefit) provision for income taxes
                
                
                (1,436
                )
                
                
                1,563
                
                
                
                -
                
                
                
                127Income
      tax (benefit) provision
                
                
                (481
                )
                
                
                769
                
                
                
                -
                
                
                
                288Net
      (loss) income
                
                
                (955
                )
                
                
                794
                
                
                
                -
                
                
                
                (161
                )Gross
      profit on land sale
                
                
                1,613
                
                
                
                -
                
                
                
                -
                
                
                
                1,613Gross
      profit on home sales
                
                
                -
                
                
                
                1,398
                
                
                
                -
                
                
                
                1,398Total
      assets
                
                
                254,637
                
                
                
                102,060
                
                
                
                (1,620
                )
                
                
                355,077Additions
      to long lived assets
                
                
                4,519
                
                
                
                422
                
                
                
                -
                
                
                
                4,941
  -19-
 Table of Contents
  United
                
                
                Puerto
                
                
                Inter-States
                
                
                Rico
                
                
                Segment
                
                
                TotalThree
      Months Ended June 30, 2008 (Unaudited):
                
                ($)
                
                
                ($)
                
                
                ($)
                
                
                ($)Rental
      property revenues
                
                
                9,895
                
                
                
                5,643
                
                
                
                -
                
                
                
                15,538Rental
      property operating expenses
                
                
                4,650
                
                
                
                2,934
                
                
                
                (5
                )
                
                
                7,579Land
      sales revenue
                
                
                4,951
                
                
                
                -
                
                
                
                -
                
                
                
                4,951Cost
      of land sales
                
                
                3,822
                
                
                
                -
                
                
                
                -
                
                
                
                3,822Home
      sales revenue
                
                
                -
                
                
                
                738
                
                
                
                -
                
                
                
                738Cost
      of home sales
                
                
                -
                
                
                
                583
                
                
                
                -
                
                
                
                583Management
      and other fees
                
                
                41
                
                
                
                157
                
                
                
                (6
                )
                
                
                192General,
      administrative, selling and marketing expense
                
                
                2,576
                
                
                
                605
                
                
                
                (2
                )
                
                
                3,179Depreciation
      and amortization
                
                
                1,497
                
                
                
                948
                
                
                
                -
                
                
                
                2,445Operating
      income
                
                
                2,342
                
                
                
                1,468
                
                
                
                1
                
                
                
                3,811Interest
      income
                
                
                106
                
                
                
                9
                
                
                
                -
                
                
                
                115Equity
      in earnings from unconsolidated entities
                
                
                -
                
                
                
                163
                
                
                
                -
                
                
                
                163Interest
      expense
                
                
                2,921
                
                
                
                1,403
                
                
                
                -
                
                
                
                4,324Minority
      interest in consolidated entities
                
                
                119
                
                
                
                43
                
                
                
                -
                
                
                
                162(Loss)
      income before (benefit) provision for income taxes
                
                
                (579
                )
                
                
                255
                
                
                
                -
                
                
                
                (324
                )Income
      tax (benefit) provision
                
                
                (180
                )
                
                
                34
                
                
                
                -
                
                
                
                (146
                )Net
      (loss) income
                
                
                (399
                )
                
                
                221
                
                
                
                -
                
                
                
                (178
                )Gross
      profit on land sale
                
                
                1,129
                
                
                
                -
                
                
                
                -
                
                
                
                1,129Gross
      profit on home sales
                
                
                -
                
                
                
                155
                
                
                
                -
                
                
                
                155Total
      assets
                
                
                261,835
                
                
                
                98,195
                
                
                
                (369
                )
                
                
                359,661Additions
      to long lived assets
                
                
                1,873
                
                
                
                229
                
                
                
                -
                
                
                
                2,102
  United
              
              
              Puerto
              
              
              Inter-States
              
              
              Rico
              
              
              Segment
              
              
              TotalThree
      Months Ended June 30, 2007 (Unaudited):
              
              ($)
              
              
              ($)
              
              
              ($)
              
              
              ($)Rental
      property revenues
              
              
              9,801
              
              
              
              5,621
              
              
              
              -
              
              
              
              15,422Rental
      property operating expenses
              
              
              4,864
              
              
              
              2,907
              
              
              
              (13
              )
              
              
              7,758Land
      sales revenue
              
              
              2,214
              
              
              
              -
              
              
              
              -
              
              
              
              2,214Cost
      of land sales
              
              
              1,440
              
              
              
              -
              
              
              
              -
              
              
              
              1,440Home
      sales revenue
              
              
              -
              
              
              
              2,126
              
              
              
              -
              
              
              
              2,126Cost
      of home sales
              
              
              -
              
              
              
              1,530
              
              
              
              -
              
              
              
              1,530Management
      and other fees
              
              
              98
              
              
              
              160
              
              
              
              (15
              )
              
              
              243General,
      administrative, selling and marketing expense
              
              
              2,176
              
              
              
              732
              
              
              
              (3
              )
              
              
              2,905Depreciation
      and amortization
              
              
              1,474
              
              
              
              923
              
              
              
              -
              
              
              
              2,397Operating
      income
              
              
              2,159
              
              
              
              1,815
              
              
              
              1
              
              
              
              3,975Interest
      income
              
              
              294
              
              
              
              11
              
              
              
              (25
              )
              
              
              280Equity
      in earnings from unconsolidated entities
              
              
              (1
              )
              
              
              173
              
              
              
              -
              
              
              
              172Interest
      expense
              
              
              3,160
              
              
              
              1,585
              
              
              
              (25
              )
              
              
              4,720Minority
      interest in consolidated entities
              
              
              173
              
              
              
              12
              
              
              
              -
              
              
              
              185(Loss)
      income before (benefit) provision for income taxes
              
              
              (879
              )
              
              
              459
              
              
              
              -
              
              
              
              (420
              )Income
      tax (benefit) provision
              
              
              (406
              )
              
              
              171
              
              
              
              -
              
              
              
              (235
              )Net
      (loss) income
              
              
              (473
              )
              
              
              288
              
              
              
              -
              
              
              
              (185
              )Gross
      profit on land sale
              
              
              774
              
              
              
              -
              
              
              
              -
              
              
              
              774Gross
      profit on home sales
              
              
              -
              
              
              
              596
              
              
              
              -
              
              
              
              596Total
      assets
              
              
              254,637
              
              
              
              102,060
              
              
              
              (1,620
              )
              
              
              355,077Additions
      to long lived assets
              
              
              1,693
              
              
              
              195
              
              
              
              -
              
              
              
              1,888
 
 -20-
 Table of Contents
  ITEM
      2.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS
 
 FORWARD-LOOKING
STATEMENTS
 The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing in this report. Historical
results set forth in Management's Discussion and Analysis of Financial Condition
and Results of Operation and the Financial Statements should not be taken as
indicative of our future operations.
 This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These include
statements about our business outlook, market and economic conditions,
strategies, future plans, anticipated costs and expenses, capital spending, and
any other statements that are not historical. The accuracy of these statements
is subject to a number of risks, uncertainties, and other factors that may cause
our actual results, performance or achievements of the Company to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.   Those items are
discussed under "Risk Factors" in Part I, Item 1A to the Form 10-K for the year
ended December 31, 2007.
 
 EXECUTIVE
SUMMARY OF RESULTS
 Consolidated
operating revenues are derived primarily from rental revenue, community
development land sales and home sales.  For the six and three months
ended June 30, 2008, our consolidated rental revenues increased $1,105,000 and
$116,000 or 4% and 1%, respectively, as compared to the same periods of
2007.  The increase was primarily attributable to construction of new
units in our United States segment as well as overall rent increases at
comparable properties in both the United States and Puerto Rico
segments.
 Community
development land sales for the six and three months ended June 30, 2008
increased $28,000 and $2,737,000 or 0% or 124%, respectively, as compared to the
same period of 2007.  Land sales revenue in any one period is affected
by the timing of lot sales, the mix of lot type as well as a mix between
residential and commercial sales.  For the six month period, community
development land sales were slightly greater than the prior period due to
increased residential lot sales offset in part by a decrease in commercial land
sales.  For the three month period, community development land sales
was significantly greater than prior period due to an increase in residential
land sales during the second quarter 2008.
 Home
sales for the six and three months ended June 30, 2008 decreased $2,232,000 and
$1,388,000 or 43% and 65%, respectively, as compared to the same period of
2007.  Home sales, currently sourced from the Puerto Rico segment, are
impacted by the local real estate market.  The Company settled twelve
and three units during the six and three months ended June 30, 2008,
respectively, as compared to twenty and eight units, respectively, closed during
the same periods of 2007.  As of June 30, 2008, nine completed units
remain within inventory, of which we currently have two units under
contract.  We currently believe that the remaining units will sell
within the next twelve months.
 On a
consolidated basis, the Company reported a net loss for the six and three months
ended June 30, 2008 of $1,371,000 and $178,000, respectively.  The net
losses for the six and three months ended June 30, 2008 include $550,000 and
$146,000 as benefits for income taxes, resulting in consolidated effective tax
rates of approximately 29% and 45%, respectively.  The consolidated
effective rate for the six months ended June 30, 2008 was impacted by the
benefit recorded for the net losses, offset by accrued penalties on uncertain
tax positions and certain nondeductible permanent items.  The
consolidated effective rate for the three months ended June 30, 2008 was the
result of a benefit recorded for losses from our United States segment at the
United States statutory rate offset in part by a provision recorded for income
reported for the Puerto Rico segment at the Puerto Rico statutory
rate.  For further discussion of these items, see the provision for
income taxes discussion within the United States and Puerto Rico segment
discussion.
 Please
refer to the Results of Operations section of Management’s Discussion and
Analysis for additional details surrounding the results of each of our operating
segments.
 
 CRITICAL
ACCOUNTING POLICIES
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States, which we refer to as GAAP, requires
management to use judgment in the application of accounting policies, including
making estimates and assumptions. These judgments affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. If our judgment or interpretation of the
facts and circumstances relating to various transactions had been different, it
is possible that different accounting policies would have been applied resulting
in a different presentation of our financial statements.
 Refer to
the Company’s 2007 Annual Report on Form 10-K for a discussion of critical
accounting policies, which include sales, profit recognition and cost
capitalization, investment in unconsolidated real estate entities, impairment of
long-lived assets, depreciation of investments in real estate, income taxes and
contingencies.  For the six and three months ended June 30, 2008,
there were no material changes to our policies.
 
 RESULTS
OF OPERATIONS
 The
following discussion is based on the consolidated financial statements of the
Company. It compares the results of operations of the Company for the six and
three months ended June 30, 2008 (unaudited), with the six and three months
ended June 30, 2007 (unaudited).  Historically, the Company’s
financial results have been significantly affected by the cyclical nature of the
real estate industry.  Accordingly, the Company’s historical financial
statements may not be indicative of future results. This discussion should be
read in conjunction with the accompanying consolidated financial statements and
notes included elsewhere in this report and within our Annual Report on Form
10-K for the year ended December 31, 2007.
 
 -21-
 Table of Contents
 Results
of Operations - U.S. Operations:
 For the
six and three months ended June 30, 2008, our U.S. segment generated operating
income of $3,883,000 and $2,342,000, respectively, compared to operating income
of $4,370,000 and $2,159,000 for the six and three months ended June 30, 2007,
respectively.  Additional information and analysis of the U.S.
operations are as follows:
 
 Rental
Property Revenues and Operating Expenses - U.S. Operations:
 As of
June 30, 2008, nineteen U.S. based apartment properties, representing 3,256
units, in which we hold an ownership interest qualified for the consolidation
method of accounting.  The rules of consolidation require that we
include within our financial statements the consolidated apartment properties'
total revenue and operating expenses.
 As of
June 30, 2008, thirteen of the consolidated properties were market rent
properties, representing 1,856 units, allowing us to determine the appropriate
rental rates.  Even though we can determine the rents, 54 of our units
at one of our market rent properties must be leased to tenants with low to
moderate income. HUD subsidizes three of the properties representing 836 units
and the three remaining properties are a mix of 137 subsidized units and 427
market rent units. HUD dictates the rents of the subsidized units.
 
 Apartment
Construction and Acquisitions
 On
January 31, 2007, we completed our newest addition to our rental apartment
properties in St. Charles' Fairway Village, the Sheffield Greens Apartments
(“Sheffield Greens”).  The 252-unit apartment project consists of
nine, 3-story buildings and offers 1 and 2 bedroom units ranging in size from
800 to 1,400 square feet.  Construction activities were started in the
fourth quarter of 2005 and leasing efforts began in the first quarter of 2006.
The first five buildings became available for occupancy during the fourth
quarter of 2006 and the final four buildings were ready for occupancy in January
2007.
 
 Six
months ended
 For the
six months ended June 30, 2008, rental property revenues increased $988,000 or
5% to $19,694,000 compared to $18,706,000 for the six months ended June 30,
2007.  The increase in rental revenues was primarily the result of
additional revenues for Sheffield Greens Apartments which accounted for
approximately $682,000 of the difference.  The increase was also
attributable to an overall 2% increase in rents between
periods.  These rental revenue increases were offset in part by
increases in the vacancy rate at certain multifamily apartment properties in St.
Charles and Baltimore.  However, incentives implemented by management
to address the vacancy rates at these properties have been successful as vacancy
rates have been reduced between the first and second quarters of
2008.
 Rental
property operating expenses decreased $265,000 or 3% for first half of 2008 to
$9,224,000 compared to $9,489,000 for the first half of 2007.  The
overall decrease in rental property operating expenses was the result of cost
cutting measures implemented at the end of 2007 and into 2008.  The
cost cutting measures resulted in decreased operating expenses for comparable
properties of $452,000 or 5%.  The decreases were experienced
primarily within office salaries and expenses, security, grounds expense, snow
removal, rehabilitation and management salaries.  Offsetting the noted
decreases were increased operating expenses for Sheffield Greens Apartments of
$259,000 as the complex was completed on January 31, 2007 and only partially
occupied during the first six months of 2007.  In addition, the
Company experienced a $140,000 or 16% increase in property taxes for comparable
properties.
 
 Three
months ended
 For the
three months ended June 30, 2008, rental property revenues increased $94,000 or
1% to $9,895,000 compared to $9,801,000 for the three months ended June 30,
2007.  The increase in rental revenues is net of a $205,000
non-recurring retroactive rent increase received at one of our subsidized
properties during the second quarter 2007.  Overall comparable rental
revenues increased $213,000 or 2%.  In addition, rental revenues at
Sheffield Greens Apartments for the second quarter 2008 was $87,000 or 9%
greater than the same period of 2007 as the complex was completing their lease
up during the second quarter 2007.  Vacancy rates at comparable
properties were similar for the second quarter 2008 as compared to the second
quarter 2007.
 Rental
property operating expenses decreased $214,000 or 4% for the second quarter of
2008 to $4,650,000 compared to $4,864,000 for the second quarter of
2007.  The overall decrease in rental property operating expenses was
the result of cost cutting measures implemented at the end of 2007 and into
2008.  Operating expense decreases were experienced primarily within
advertising, office salaries and expenses, security and management
salaries.  Offsetting the noted decreases was an increase in property
taxes of $69,000 or 16% for comparable properties.
 
 Community
Development - U.S. Operations:
 Land
sales revenue in any one period is affected by the mix of lot sizes and, to a
greater extent, the mix between residential and commercial sales. In March 2004,
the Company executed Development and Purchase Agreements with Lennar Corporation
(the “Lennar Agreements”) to develop and sell 1,950 residential lots (1,359
single-family lots and 591 town home lots) in Fairway Village in St. Charles,
Maryland.  The Lennar Agreements requires the homebuilder to provide
$20,000,000 in letters of credit to secure the purchase of the lots. As security
for the Company’s obligation to develop the lots, a junior lien was placed on
the residential portion of Fairway Village.  The agreements require
Lennar to purchase 200 residential lots per year, provided that they are
developed and available for delivery as defined by the Development
Agreement.  For each lot sold in Fairway Village, the Company must
deposit $10,300 in an escrow account to fund the principal payments due to
Charles County, at which time the lots are released from the junior
lien.  In December 2007, the Company agreed to an amendment to the
Lennar Agreements which temporarily reduced the final lot price for 100 lots (51
lots purchased by Lennar in December 2007 and 49 lots purchased during the
second quarter 2008) from 30% to 22.5% of the base price of the home sold on the
lot, with guaranteed minimum prices of $78,000 per single family lot and $68,000
per townhome lot.  During the first six months of 2008, Lennar
actually purchased 69 total lots, 20 more than required by the December
Amendment.  The Company agreed that these additional 20 lots would be
sold with the same terms as those covered by the December
Amendment.
  -22-
 Table of Contents
 Lennar
has completed the terms of the December Amendment and, accordingly, the terms of
the original agreements are currently in place.  However, we
anticipate another modification request from Lennar prior to taking down
additional lots.  The modification will likely require additional lots
to be taken down in the fourth quarter with final lot price percentages greater
than 22.5% but less than the original 30%.
 Sales are
closed on a lot by lot basis at the time when the builder purchases the
lot.  The final selling price per lot sold to Lennar may exceed the
guaranteed minimum price recognized at closing since the final lot price is
based on a percentage of the base price of the home sold on the lot, but not
less than the guaranteed minimum price.  Additional revenue exceeding
the guaranteed minimum take down price per lot will be recognized upon Lennar's
settlement with the respective homebuyers.
 Residential
lots vary in size and location resulting in pricing differences. Gross margins
are calculated based on the total estimated sales values based on current sales
prices for all remaining lots within a neighborhood as compared to the total
estimated costs.
 Commercial
land is typically sold by contract that allows for a study period and delayed
settlement until the purchaser obtains the necessary permits for development.
The sales prices and gross margins for commercial parcels vary significantly
depending on the location, size, extent of development and ultimate use.
Commercial land sales are generally cyclical.
 Community
development land sales revenue increased $28,000 for the six months ended June
30, 2008 to $5,997,000 as compared to $5,969,000 for the six months ended June
30, 2007.  Although similar in total between periods, residential land
sales for the first half of 2008 were greater than the first half of 2007,
partially offset by a decrease in commercial land sales and other
revenues.
 Community
development land sales revenue increased $2,737,000 or 124% for the three months
ended June 30, 2008 to $4,951,000 as compared to $2,214,000 for the three months
ended June 30, 2007.  The overall increase was primarily the result of
an increase in residential land sales for the second quarter 2008 as compared to
the second quarter of 2007.  Further discussions of the components of
these variances are as follows:
 
 Residential
Land Sales
 For the
six months ended June 30, 2008, we recognized $5,479,000 related to the delivery
of eight townhome lots and sixty-one single family lots to Lennar as compared to
$1,579,000 consisting of fourteen townhome lots and three single family lots
delivered in the six months ended June 30, 2007.  For the lots
delivered in 2008, we recognized as revenue the minimum guaranteed price of
$68,000 per townhome lot and $78,000 per single family lot, plus water and sewer
fees, road fees and other off-site fees.  For the lots delivered in
2007, we recognized as revenue an average minimum guaranteed price of $85,000
per townhome lot and $115,300 per single family lot, plus water and sewer fees,
road fees and other off-site fees.
 For the
three months ended June 30, 2008, we recognized $4,672,000 related to the
delivery of fifty-eight single family lots to Lennar as compared to $967,000
related to seven townhome lots and three single family lots delivered in the
second quarter of 2007.  For the lots delivered in 2008, we recognized
as revenue the minimum guaranteed price of $78,000 per single family lot, plus
water and sewer fees, road fees and other off-site fees.  For the lots
delivered in 2007, we recognized as revenue an average minimum guaranteed price
of $85,000 per townhome lot and $115,300 per single family lot, plus water and
sewer fees, road fees and other off-site fees.
 The
Company recognizes additional revenue based on a percentage of the final
settlement price of the home sold by Lennar to the homebuyer, to the extent
greater than the guaranteed minimum price, as provided by our agreement with
Lennar.  For both the six and three months ended June 30, 2008, the
Company recognized $213,000 of additional revenue for lots that were previously
delivered to Lennar.  For the six and three months ended June 30,
2007, the Company recognized $1,075,000 and $761,000, respectively, of
additional revenue for lots that were previously delivered to
Lennar.
 As of
June 30, 2008, 1,441 lots remained under contract to Lennar, of which 60 single
family lots were developed and ready for delivery.
 
 Commercial
Land Sales
 For the
six months ended June 30, 2008, we sold 0.99 commercial acres in St. Charles for
$184,000.  This compares to 5.78 commercial acres in St. Charles for
$2,660,000 for the six months ended June 30, 2007.  No commercial
sales settled in the three months ended June 30, 2008 or 2007.  For
the three months ended June 30, 2008 and 2007, we did not settle any commercial
acres.  As of June 30, 2008, our commercial sales backlog contained
81.26 acres under contract for a total of $14,829,000.
 
 St.
Charles Active Adult Community, LLC - Land Joint Venture
 In
September 2004, the Company entered into a joint venture agreement with Lennar
Corporation for the development of a 352-unit, active adult community located in
St. Charles, Maryland.  The Company manages the project’s development
for a market rate fee pursuant to a management agreement.  In
September 2004, the Company transferred land to the joint venture in exchange
for a 50% ownership interest and $4,277,000 in cash.  The Company’s
investment in the joint venture was recorded at 50% of the historical cost basis
of the land with the other 50% recorded within our deferred charges and other
assets.  The proceeds received are reflected as deferred revenue. The
deferred revenue and related deferred costs will be recognized into income as
the joint venture sells lots to Lennar.  In March 2005, the joint
venture closed a non-recourse development loan which was amended in September
2006, again in December 2006, and again in October 2007.  Most
recently, the development loan was modified to provide a one-year delay in
development of the project, as to date, lot development has outpaced
sales.  Per the terms of the loan, both the Company and Lennar
provided development completion guarantees.
 In the
first half of 2008, the joint venture did not deliver any lots to
Lennar.  However, in the six and three months ended June 30, 2007, the
joint venture delivered 30 and 16 lots to Lennar.  Accordingly, the
Company recognized $655,000 and $363,000 in deferred revenue, off-site fees and
management fees and $218,000 and $125,000 of deferred costs for the six and
three months ended June 30, 2007, respectively.
  -23-
 Table of Contents
 Gross
Margin on Land Sales
 The gross
margin on land sales for the six and three months ended June 30, 2008 were 21%
and 23%, respectively, as compared to 27% and 35% for the same periods of 2007,
respectively.  Gross margins differ from period to period depending on
the mix of land sold as well as volume of sales available to absorb certain
period costs.  For the first half of 2008, our land sales were
primarily comprised of residential land sales at 27% margins.  For the
six months ended June 30, 2007, our residential land sales margins were 48%,
offset by significant commercial sales with gross margins of approximately
15%.  The commercial margins for 2007 were impacted by increases in
the estimated cost of constructing a boardwalk within the O’Donnell Lake
Restaurant Park as the actual bid proposals received were higher than the
engineer’s expected cost.
 The
decrease in gross profits for the three months ended June 30, 2008 as compared
to the three months ended June 30, 2007, was primarily due to a decrease in the
gross margins on residential land sales.  For the second quarter 2008,
gross profits on residential land sales were approximately 27% and were based on
relative sales values per the revised terms of the Lennar
Agreements.  For the second quarter 2007, residential land sales gross
margins were 45%.
 
 Customer
Dependence
 Residential
land sales to Lennar within our U.S. segment were $5,691,000 for the six months
ended June 30, 2008, which represents 22% of the U.S. segment's revenue and 14%
of our total year-to-date consolidated revenue.  No other customers
accounted for more than 10% of our consolidated revenue for the six months ended
June 30, 2008.  Loss of all or a substantial portion of our land
sales, as well as the joint venture's land sales, to Lennar would have a
significant adverse effect on our financial results until such lost sales could
be replaced.
 
 Management
and Other Fees - U.S. Operations:
 We earn
monthly management fees from all of the apartment properties that we own, as
well as our management of apartment properties owned by third parties and
affiliates of J. Michael Wilson.  Effective February 28, 2007, the
Company’s management agreement with G.L. Limited Partnership was terminated upon
the sale of the apartment property to a third party.  Management fees
generated by this property accounted for less than 1% of the Company’s total
revenue.
 We
receive an additional fee from the properties that we manage for their use of
the property management computer system and a fee for vehicles purchased by the
Company for use on behalf of the properties. The costs of the computer system
and vehicles are reflected within depreciation expense.
 The
Company manages the project development of the joint venture with Lennar for a
market rate fee pursuant to a management agreement.  These fees are
based on the cost of the project and a prorated share is earned when each lot is
sold.
 Management
fees for the six months ended June 30, 2008 decreased $129,000 to $79,000 as
compared to $208,000 for the same period of 2007.  Management fees for
the three months ended June 30, 2008 decreased $57,000 to $41,000 as compared to
$98,000 for the same period of 2007.  The decreases in the six and
three month periods were primarily as a result of the reduction in number of
lots delivered by the joint venture.  Management fees presented on the
consolidated income statements include only the fees earned from the
non-controlled properties; the fees earned from the controlled properties are
eliminated in consolidation.
 
 General,
Administrative, Selling and Marketing Expense - U.S. Operations:
 The costs
associated with the oversight of our U.S. operations, accounting, human
resources, office management and technology, as well as corporate and other
executive office costs are included in this section. ARMC employs the
centralized office management approach for its property management services for
our properties located in St. Charles, Maryland, our properties located in the
Baltimore, Maryland area and the property in Virginia and, to a lesser extent,
the other properties that we manage. Our unconsolidated and managed-only
apartment properties reimburse ARMC for certain costs incurred at the central
office that are attributable to the operations of those properties. In
accordance with EITF Topic 01-14, "Income Statement Characterization of
Reimbursements Received for Out of Pocket Expenses Incurred," the cost
and reimbursement of these costs are not included in general and administrative
expenses, but rather they are reflected as separate line items on the
consolidated income statement.
 For the
six months ended June 30, 2008, general, administrative, selling and marketing
costs incurred within our U.S. operations increased $856,000 or 22% to
$4,779,000 compared to $3,923,000 for the same period of 2007.  The
increase is primarily attributable to costs associated with a severance accrual
recorded related to the departure of the Chief Financial Officer as well as
accruals for another executive retention agreement.  In addition,
consulting fees for the six months ended June 30, 2008 are greater than the same
period of 2007 due to a consultant
who has assisted the Company with strategic planning and also worked with
the  Wilsons on the going-private effort. Board of Trustee fees
were also more for the first half of 2008 due to the decision of the Trustees’
Share Incentive Plan Committee to accelerate the vesting of restricted shares
for Trustees whose terms ended in June 2008, as well an increase in the size of
the board and increased fee accruals for meetings held.  These
increases were partially offset by a reduction in the accrual for stock
appreciation rights due to a decrease in share price, as well as a decrease in
the number of rights remaining outstanding.
 For the
three months ended June 30, 2008, general, administrative, selling and marketing
costs incurred within our U.S. operations increased $400,000 or 18% to
$2,576,000 compared to $2,176,000 for the same period of 2007.  The
increase is primarily attributable to fees associated with a severance accrual
recorded related to the departure of the Chief Financial Officer as well as
accruals for another executive retention agreement.  In addition,
consulting fees for the three months ended June 30, 2008 are greater than the
same period of 2007 due to a consultant
who has assisted the Company with strategic planning and also worked with
the  Wilsons on the going-private effort.  Board of
Trustee fees were also more for the second quarter of 2008 due to the decision
of the Trustees’ Share Incentive Plan Committee to accelerate the vesting of
restricted shares for Trustees whose terms ended in June 2008 as well as an
increase in the size of the board and increased fee accruals for meetings
held.  These increases were partially offset by a reduction in the
accrual for stock appreciation rights due to a decrease in share price as well
as a decrease in the number of shares remaining outstanding.
 
 -24-
 Table of Contents
 Depreciation
Expense - U.S. Operations:
 Depreciation
expense increased $414,000 to $3,159,000 for the first six months of 2008
compared to $2,745,000 for the same period in 2007.  The increase in
depreciation is primarily the result of depreciation related to the addition of
Sheffield Greens Apartments.  Depreciation expense for the second
quarter 2008 increased $23,000 to $1,497,000 compared to $1,474,000 for the
second quarter 2007.
  Interest
Income – U.S. Operations:
 Interest
income decreased $362,000 to $229,000 for the six months ended June 30, 2008, as
compared to $591,000 for the six months ended June 30, 2007.  For the
three months ended June 30, 2008, interest income decreased $188,000 to
$106,000, as compared to $294,000 for the three months ended June 30,
2007.  The decrease was primarily the result of undistributed bond
proceeds held by the County being used to fund development costs, resulting in a
reduction of interest income earned on these funds.  For the six and
three months ended June 30, 2008 and 2007, the Company recognized $67,000 and
$31,000 and $299,000 and $147,000 of interest income on these escrowed funds,
respectively.
 
 Interest
Expense - U.S. Operations:
 The
Company considers interest expense on all U.S. debt available for capitalization
to the extent of average qualifying assets for the period.  Interest
specific to the construction of qualifying assets, represented primarily by our
recourse debt, is first considered for capitalization.  To the extent
qualifying assets exceed debt specifically identified, a weighted average rate
including all other debt of the U.S. segment is applied.  Any excess
interest is reflected as interest expense.  For 2008 and 2007, the
excess interest primarily relates to the interest incurred on the non-recourse
debt from our investment properties.
 For the
six months ended June 30, 2008, interest expense decreased $542,000 or 9% to
$5,684,000, as compared to $6,226,000 for the same period of
2007.  For the three months ended June 30, 2008, interest expense
decreased $239,000 or 8% to $2,921,000, as compared to $3,160,000 for the same
period of 2007.  The decreases for the six and three month periods
were primarily attributable to amortization of our mortgage notes as well as an
increase in qualifying assets eligible for interest capitalization as new
Apartment and Condominium projects begin in Fairway Village’s Gleneagles
section, the construction of an office building within O’Donnell Lake Restaurant
Park, and additional infrastructure investments as the Company nears completion
of the County Road projects.
 For the
six and three months ended June 30, 2008, $1,246,000 and $667,000 of interest
cost was capitalized, respectively.  For the six and three months
ended June 30, 2007, $601,000 and $319,000 of interest cost was capitalized,
respectively.
 
 Minority
Interest in Consolidated Entities – U.S. Operations:
 The
Company records minority interest expense related to the minority partners’
share of the consolidated apartment partnerships earnings and distributions to
minority partners in excess of their basis in the consolidated
partnership.  Losses charged to the minority interest are limited to
the minority partners’ basis in the partnership.  Because the minority
interest holders in most of our partnerships have received distributions in
excess of their basis, we anticipate volatility in minority interest
expense.  Although this allows us to recognize 100 percent of the
income of the partnerships up to accumulated distributions and losses in excess
of the minority partners’ basis previously required to be recognized as our
expense, we will be required to expense 100 percent of future distributions to
minority partners and any subsequent losses.
 For the
six months ended June 30, 2008, minority interest in consolidated entities
decreased $50,000 to $123,000, as compared to $173,000 for the same period of
2007.  For the three months ended June 30, 2008, minority interest in
consolidated entities decreased $54,000 to $119,000, as compared to $173,000 for
the same period of 2007.  The decreases for the six- and three-month
periods were the result of a decrease in surplus cash distributions made to
minority partners between periods.
 
 Provision
for Income Taxes – U.S. Operations:
 The
effective tax rates for the six and three months ended June 30, 2008, and June
30, 2007, were 25% and 31% and 33% and 46%, respectively.  The
statutory rate is 40%.  The effective tax rates for 2008 and 2007
differ from the statutory rate due to relatively small net losses reported for
the periods, the related benefit for which, were partially offset by accrued
penalties on uncertain tax positions.
 
 Results
of Operations - Puerto Rico Operations:
 For the
six and three months ended June 30, 2008, our Puerto Rico segment generated
operating income of $3,379,000 and $3,915,000, respectively, compared to
operating income of $1,468,000 and $1,815,000 for the six and three months ended
June 30, 2007, respectively.  Additional information and analysis of
the Puerto Rico operations are as follows:
 
 Rental
Property Revenues and Operating Expenses - Puerto Rico Operations:
 As of
June 30, 2008, nine Puerto Rico-based apartment properties, representing twelve
apartment complexes totaling 2,653 units, in which we hold an ownership interest
(“Puerto Rico Apartments”) qualified for the consolidation method of
accounting.  The rules of consolidation require that we include within
our financial statements the consolidated apartment properties' total revenue
and operating expenses. As of June 30, 2008, all of the Puerto Rico Apartments
were HUD subsidized projects with rental rates governed by HUD.
 Our
Puerto Rico rental property portfolio also includes the operations of a
commercial rental property in the community of Parque Escorial, known as
Escorial Building One.  The company constructed and holds a 100%
ownership interest in Escorial Building One, which commenced operations in
September 2005.  Escorial Building One is a three-story building with
approximately 56,000 square feet of offices space for lease.  The
Company moved the Puerto Rico Corporate Office to the new facilities in the
third quarter of 2005 and leases approximately 20% of the
building.  The building was 46% leased including the Company's
occupancy with a letter of intent for an additional 33% as of June 30,
2008.  Subsequent to June 30, 2008, the Company converted the letter
of intent with University of Phoenix into a lease agreement.
  -25-
 Table of Contents
 Six
months ended
 Rental
property revenues increased $117,000 or 1% to $11,243,000 for the six months
ended June 30, 2008 compared to $11,126,000 for the same period of
2007.  The increase for the first half of 2008 as compared to the
first half 2007 was the result of overall rent increases for our HUD subsidized
multifamily apartment properties of 2% while commercial revenues decreased by
$64,000 or 25% due to reduced occupancy between periods.
 Rental
operating expenses increased $66,000 or 1% to $5,704,000 for the six months
ended June 30, 2008 compared to $5,638,000 for the same period of
2007.  The increase for the first half of 2008 was related to overall
inflationary increases of 3% for our multifamily apartment properties offset in
part by reduced operating expenses of $66,000 or 19% for our commercial property
due to bad debt expense, advertising and leasing concession during the six-month
ended June 30, 2007, with no comparable amounts for the same period of
2008.
 
 Three
months ended
 Rental
property revenues increased $22,000 or 0% to $5,643,000 for the three months
ended June 30, 2008 compared to $5,621,000 for the same period of
2007.  The increase for the second quarter of 2008 as compared to the
second quarter 2007 was the result of overall rent increases for our HUD
subsidized multifamily apartment properties of 1% while commercial revenues
decreased by $44,000 or 33% due to reduced occupancy between
periods.
 Rental
operating expenses increased $27,000 or 1% to $2,934,000 for the three months
ended June 30, 2008 compared to $2,907,000 for the same period of
2007.  The nominal increase for the second quarter of 2008 was related
to overall inflationary increases of 2% for our multifamily apartment properties
offset in part by reduced operating expenses of $39,000 or 22% for our
commercial property due to advertising expense in the second quarter of 2007
with no comparable amounts for the same period of 2008.
 
 Community
Development - Puerto Rico Operations:
 Total
land sales revenue in any one period is affected by commercial sales which are
cyclical in nature and usually have a noticeable positive impact on our earnings
in the period in which settlement is made.
 There
were no community development land sales during the six or three months ended
June 30, 2008 and 2007.  There were no sales contracts in backlog at
June 30, 2008.
 
 Homebuilding
– Puerto Rico Operations:
 The
Company organizes corporations as needed to operate each individual homebuilding
project.  In April 2004, the Company commenced the construction of a
160-unit mid-rise condominium complex known as Torres del Escorial
(“Torres”).  The condominium units were offered to buyers in the
market in January 2005 and delivery of the units commenced in the fourth quarter
of 2005.  The condominium units are sold individually from an onsite
sales office to pre-qualified homebuyers.
 For the
six months ended June 30, 2008, homebuilding revenues decreased $2,232,000 or
43% as compared to the six months ended June 30, 2007.  The decrease
was primarily driven by a reduction in the number of units and a decrease in the
average selling price per unit.  Within the Torres project and during
the six months ended June 30, 2008 twelve units were closed at an average
selling price of approximately $249,000, generating aggregate revenues of
$2,982,000.  During the six months ended June 30, 2007, twenty units
within the Torres project were closed at an average selling price of $261,000
per unit generating $5,214,000 in home sales revenue.  The reduced
average selling price per unit was the result of the type or mix of units sold
during the respective periods.
 For the
three months ended June 30, 2008, homebuilding revenues decreased $1,388,000 or
65% as compared to the three months ended June 30, 2007.  The decrease
was primarily driven by a reduction in the number of units sold as well as the
average selling price per unit.  Within the Torres project and during
the three-month period ended June 30, 2008, three units were closed at an
average selling price of approximately $246,000 per unit, generating aggregate
revenues of $738,000.  During the second quarter of 2007 eight units
were closed at an average selling price of approximately $266,000, generating
aggregate revenues of $2,126,000.  The reduced average selling price
per unit was the result of the type or mix of units sold during the respective
periods.
 The gross
margins for the six and three months ended June 30, 2008 and 2007 were 23% and
21% and 27% and 28%, respectively.  The decrease in the gross profit
margins between 2008 and 2007 is attributable to the reduction in average
selling price of the units for the respective periods due to the mix of unit
types sold during the respective periods.
 As of
June 30, 2008, nine units remain unsold, two of which are currently under
contract at an average selling price of $247,000.  As part of a
promotional campaign, effective January 2008, each sales contract is backed by a
$3,000 deposit as opposed to the $6,000 deposit previously
required.  For the six months ended June 30, 2008, the Company’s sales
activity resulted in the execution of thirteen contracts with no cancellations
during the period.  For the same period in 2007, the Company had thirteen
new contracts and five canceled contracts.  The Company continues to
believe that the remaining units in Torres will sell at the current
pricing.
 
 Management and Other fees – Puerto
Rico Operations:
 Management
fees presented on the consolidated income statements include only the fees
earned from the non-controlled properties; the fees earned from the controlled
properties are eliminated in consolidation.  We recognize monthly fees
from our management of four non-owned apartment properties and four home-owner
associations operating in Parque Escorial.  For the six and three
months ended June 30, 2008, management and other fees did not differ
substantially from prior period amounts.
 
 -26-
 Table of Contents
 General,
Administrative, Selling and Marketing Expenses – Puerto Rico
Operations:
 The costs
associated with the oversight of our operations, accounting, human resources,
office management and technology are included within this
section.  The apartment properties reimburse IGP for certain costs
incurred at IGP’s office that are attributable to the operations of those
properties.  In accordance with EITF 01-14 the costs and reimbursement
of these costs are not included within this section but rather, they are
reflected as separate line items on the consolidated income
statement.  Due to the fact that our corporate office is in our office
building, Escorial Office Building One, rent expense and parking expenses are
eliminated in consolidation.
 For the
six months ended June 30, 2008, general, administrative, selling and marketing
expenses decreased $175,000 or 12% to $1,273,000 as compared to $1,448,000 for
the same period of 2007.  The decrease is primarily attributable to a
reduction in salaries, bonus, fringe benefits and payroll tax accruals between
periods.  For the first half of 2008, $787,000 of accruals for salaries,
bonus, fringe benefits and payroll taxes were made as compared to $897,000 for
the first quarter of 2007.  In addition, the property and municipal taxes
for the first half of 2008 were $57,000 less than prior period due to a
reduction in property taxes paid in 2008 compared to 2007 and a decrease in
municipal taxes.  Finally, legal expenses were $20,000 less for the first
half of 2008 due to a refund received in 2008 from an insurance company for
legal services paid by the Company during 2007.
 For the
three months ended June 30, 2008, general, administrative, selling and marketing
expenses decreased $127,000 or 17% to $605,000 as compared to $732,000 for the
same period of 2007.  The decrease is primarily attributable to a reduction
in bonus and related payroll tax accruals between periods.  For the second
quarter 2008, $365,000 of accruals for salaries, bonus, fringe benefits and
payroll taxes were made as compared to $434,000 for the second quarter of
2007.  In addition, the property and municipal taxes for the second quarter
of 2008 were $49,000 less than prior period due to a reduction in property taxes
paid in 2008 compared to 2007 and a decrease in municipal taxes.
 
 Depreciation
and Amortization Expense – Puerto Rico Operations:
 Depreciation
and amortization expense for the six months ended June 30, 2008 increased
$47,000 or 3% to $1,883,000 as compared to $1,836,000 for six months ended June
30, 2007.  For the three months ended June 30, 2008, depreciation and
amortization expense increased $25,000 or 3% to $948,000 as compared to $923,000
for the three months ended June 30, 2007.  The increases in depreciation
expense for the six- and three-month periods resulted from capital improvements
completed in our multifamily apartment properties.
 
 Interest
Income – Puerto Rico Operations:
 Interest
income for the six months ended June 30, 2008 decreased $209,000 to $17,000 as
compared to $226,000 for the same period of 2007.  The decrease is
primarily attributable to the recognition of non-recurring interest income on
the El Monte note receivable in the first quarter of 2007 with no comparable
amounts for the first half of 2008.  Interest income for the three
months ended June 30, 2008 decrease $2,000 to $9,000 as compared to $11,000 in
the same quarter of 2008.  The decrease for the second quarter is
attributable to a reduction in the interest rate in certificate of deposits for
2008 compared to 2007.
 
 Equity
in Earnings from Unconsolidated Entities – Puerto Rico Operations:
 We
account for our limited partner investment in the commercial rental property
owned by ELI and El Monte under the equity method of accounting.  The
earnings from our investment in commercial rental property are reflected within
this section.  The recognition of earnings depends on our investment
basis in the property, and where the partnership is in the earnings
stream.
 For the
six months ended June 30, 2008, equity in earnings from unconsolidated entities
decreased $1,515,000 to $331,000, as compared to $1,846,000 during the same
period of 2007.  The increase was related to the payment in full of
the $1,500,000 note receivable held by El Monte in January 2007, with no
comparable amounts received in 2008.  The note was received as part of
the sale of the El Monte facility, at which point the Company determined that
the cost recovery method of accounting was appropriate for gain
recognition.  Accordingly, revenue was deferred until collection of
the note receivable, which occurred in January 2007.
 For the
three months ended June 30, 2008, equity in earnings from unconsolidated
entities decreased $10,000 to $163,000 as compared to $173,000 during the same
period of 2007.
 
 Interest
Expense – Puerto Rico Operations:
 The
Company considers interest expense on all Puerto Rico debt available for
capitalization to the extent of average qualifying assets for the
period.  Interest specific to the construction of qualifying assets is
first considered for capitalization.  To the extent qualifying assets
exceed debt specifically identified a weighted average rate including all other
debt of the Puerto Rico segment is applied.  Any excess interest is
reflected as interest expense.  For 2008 and 2007, the excess interest
primarily relates to the interest incurred on the non-recourse debt from our
investment properties.
 For the
six months ended June 30, 2008, interest expense decreased $280,000 or 9% to
$2,886,000, as compared to $3,166,000 for the same period of
2007.  For the three months ended June 30, 2008, interest expense
decreased $182,000 or 11% to $1,403,000 as compared to $1,585,000 for the same
period of 2007.  The decrease in interest expense for the six- and
three-month periods is attributable to a decrease in inter-segment interest
expense due to the repayment of an inter-segment note in February 2008 as well
as the normal reduction of interest expense in the mortgages of the apartments
and commercial properties due to the reduction of the outstanding principal
balances.
 For the
six and three months ended June 30, 2008, $97,000 and $37,000 of interest cost
was capitalized, respectively.  For the six and three months ended
June 30, 2007, $78,000 and $39,000 of interest cost was capitalized,
respectively.
 
 -27-
 Table of Contents
 Minority
Interest in Consolidated Entities – Puerto Rico Operations:
 The
Company records minority interest expense related to the minority partners’
share of the consolidated apartment partnerships earnings and distributions to
minority partners in excess of their basis in the consolidated
partnership.  Losses charged to the minority interest are limited to
the minority partners’ basis in the partnership.  Because the minority
interest holders in most of our partnerships have received distributions in
excess of their basis, we anticipate volatility in minority interest
expense.  Although this allows us to recognize 100 percent of the
income of the partnerships up to accumulated distributions and losses in excess
of the minority partners’ basis previously required to be recognized as our
expense, we will be required to expense 100 percent of future distributions to
minority partners and any subsequent losses.
 For the
six months ended June 30, 2008, minority interest in consolidated entities
decreased $186,000 to $1,198,000, as compared to $1,384,000 for the same period
of 2007.  The decrease was primarily the result of a non-recurring
$400,000 refinancing distribution made to minority partners of one of our
partnerships in the first quarter of 2007.  This decrease was
partially offset by an increase in surplus cash distributions to minority
partners during the first half of 2008 as compared to the same period of
2007.
 For the
three months ended June 30, 2008, minority interest in consolidated entities
increased $31,000 to $43,000, as compared to $12,000 for the same period of
2007.  The increase is attributable to increased income attributable
to the limited partners from one partnership whose limited partners have not yet
received distributions and absorbed losses in excess of their
basis.
 
 Provision
for Income Taxes – Puerto Rico Operations:
 The
effective tax rate for the six and three months ended June 30, 2008 and 2007
were 55% and 13% and 49% and 37%, respectively.  The statutory rate is
29%.  The reconciling items from the effective tax rate and the
statutory rate have opposite effects for the six months ended June 30, 2008 as a
result of incurring a loss for that period, whereas income was recorded for all
other periods presented.  The difference in the statutory tax rate and
the effective tax rates for the six and three months ended June 30, 2008, was
primarily due to tax exempt income offset in part by the double taxation on the
earnings of our wholly owned corporate subsidiary, ICP, and deferred items for
which no current benefit may be recognized.  The difference in the
statutory tax rate and the effective tax rate for the pre-tax income for the six
and three months ended June 30, 2007, was primarily due to the double taxation
on the earnings of our wholly owned corporate subsidiary, ICP.  As a
result of a non-recurring gain related to its investment in El Monte, ICP’s
current taxes payable and ACPT’s related deferred tax liability on the ICP
undistributed earnings experienced a considerable increase during the six month
period.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Summary
of Cash Flows
 As of
June 30, 2008, the Company had cash and cash equivalents of $22,131,000 and
$21,451,000 in restricted cash.  The following table sets forth the
changes in the Company's cash flows ($ in thousands):
 
 Six
      Months Ended June 30,2008
              
              
              2007Operating
      Activities
              
              $
              (1,793
              )
              
              $
              (7,072
              )Investing
      Activities
              
              
              (3,298
              )
              
              
              (5,489
              )Financing
      Activities
              
              
              2,310
              
              
              
              7,405Net
      Decrease in Cash
              
              $
              (2,781
              )
              
              $
              (5,156
              )
  For the
six months ended June 30, 2008, operating activities used $1,793,000 of cash
flows compared to $7,072,000 of cash flows used in operating activities for the
six months ended June 30, 2007.  The $5,279,000 decrease in cash used
in operating activities for the first half of 2008 compared to the same period
in 2007 was primarily related to $5,692,000 less of a reduction in accounts
payable and accrued liabilities during the six months ended June 30, 2008 as
compared to the same period of 2007.  In addition, community
development asset additions were $12,890,000 for the six months ended June 30,
2008, $771,000 less than the additions for the same period of
2007.  Partially offsetting these amounts were decreased home sales
activities, which were $2,232,000 less for the first half of 2008 as compared to
the same period for 2007.    From period to period, cash
flow from operating activities are also impacted by changes in our net income,
as discussed more fully above under "Results of Operations," as well as changes
in our receivables and payables.
 For the
six months ended June 30, 2008, net cash used in investing activities was
$3,298,000 compared to $5,489,000 for the first half of 2007.  Cash
provided by or used in investing activities generally relates to increases in
our investment portfolio through acquisition, development or construction of
rental properties and land held for future use, net of returns on our
investments. The $2,191,000 decrease in cash used in investing activities
generally relates to a decrease in capital improvements to our multifamily
apartment properties.  For the half of 2008, we made capital
improvements totaling $1,567,000 to our multifamily apartment properties,
$3,141,000 less than the same period of 2007.  In the first half of
2007, the Company increased its investment in capital improvements as a result
of the refinancing of several apartment properties and re-investment of some of
those proceeds into the related projects.  In addition, the increase
in restricted cash was $1,696,000 less for the six months ended June 30, 2008 as
compared to the same period of 2007.  Partially offsetting these
decreases in cash used in investing activities was a $1,402,000 increase in
investments in construction of new buildings.  The Company is
currently constructing a restaurant/office building within the O’Donnell Lake
Restaurant Park.  In addition, the Company received payment in full
for the El Monte receivable during the first six months of 2007, with no
comparable amounts received in 2008.
  -28-
 Table of Contents
 For the
six months ended June 30, 2008, net cash provided by financing activities was
$2,310,000 as compared to $7,405,000 for the six months ended June 30,
2007.  The $5,095,000 decrease in cash provided by financing
activities was primarily the result of the refinancing of the mortgages of two
apartment properties, Village Lake Apartments, LLC and Coachman’s Apartments,
LLC during the first quarter of 2007, with no comparable refinancings during the
first six months of 2008.  In addition, there was a $1,469,000
decrease in draws received from the Charles County bond escrows between
periods.  Partially offsetting these decreases in cash provided by
financing activities was a $580,000 decrease in cash distributions to minority
partners and a $1,032,000 decrease in dividends paid to shareholders, a result
of the suspension of dividend payments in the forth quarter of
2007.
 
 Contractual
Financial Obligations
 
 Recourse Debt - U.S.
Operations
 Pursuant
to an agreement reached between ACPT and the Charles County Commissioners in
2002, the Company agreed to accelerate the construction of two major roadway
links to the Charles County (the "County") road system. As part of the
agreement, the County agreed to issue general obligation public improvement
Bonds (the “Bonds”) to finance $20,000,000 of this construction guaranteed by
letters of credit provided by Lennar as part of a residential lot sales contract
for 1,950 lots in Fairway Village.  The Bonds were issued in three
installments with the final $6,000,000 installment issued in March 2006. 
The Bonds bear interest rates ranging from 4% to 8%, for a blended lifetime rate
for total Bonds issued to date of 5.1%, and call for semi-annual interest
payments and annual principal payments and mature in fifteen
years.  Under the terms of bond repayment agreements between the
Company and the County, the Company is obligated to pay interest and principal
on the full amount of the Bonds; as such, the Company recorded the full amount
of the debt and a receivable from the County representing the undisbursed Bond
proceeds to be advanced to the Company as major infrastructure development
within the project occurs.  As part of the agreement, the Company will
pay the County a monthly payment equal to one-sixth of the semi-annual interest
payments and one-twelfth of the annual principal payment due on the
Bonds.  The County also requires ACPT to fund an escrow account from
lot sales that will be used to repay this obligation.
 In August
2005, the Company signed a memorandum of understanding ("MOU") with the Charles
County Commissioners regarding a land donation that is now the site of a minor
league baseball stadium and entertainment complex which opened in May of
2008.  Under the terms of the MOU, the Company donated 42 acres of
land in St. Charles to the County on December 31, 2005. The Company also agreed
to expedite off-site utilities, storm-water management and road construction
improvements that will serve the entertainment complex and future portions of
St. Charles so that the improvements will be completed concurrently with the
entertainment complex.  The County will be responsible for
infrastructure improvements on the site of the complex. In return, the County
agreed to issue general obligation bonds to finance the infrastructure
improvements.  In March 2006, $4,000,000 of bonds were issued for this
project, with an additional $3,000,000 issued in both March 2007 and March
2008.  The funds provided by the County for this project will be
repaid by ACPT over a 15-year period.  In addition, the County agreed
to issue an additional 100 school allocations a year to St. Charles commencing
with the issuance of bonds.
 In
December 2006, the Company reached an agreement with Charles County whereby the
Company receives interest payments on any undistributed bond proceeds held in
escrow by the County.  The agreement covers the period from July 1,
2005, through the last draw made by the Company. For the six and three months
ended June 30, 2008 and 2007, the Company recognized $62,000 and $31,000 and
$299,000 and $147,000 of interest income on these escrowed funds,
respectively.
 On April
2, 2008, the Company secured a two-year, $3,600,000 construction loan for the
construction of a commercial restaurant/office building within the O’Donnell
Lake Restaurant Park.  The facility is secured by the land along with
any improvements constructed and bears interest at Wall Street Journal published
Prime Rate (5.0% at June 30, 2008).  At the end of the two-year
construction period, the Company may convert the loan to a 5 year permanent
loan, amortized over a 30 year period at a fixed interest rate to be
determined.  As of June 30, 2008, $1,123,000 was outstanding under
this facility leaving $2,477,000 available to fund completion of the
building.
 
 Recourse Debt - Puerto Rico
Operations
 Substantially
all of the Company's 490 acres of community development land assets in Parque El
Comandante within the Puerto Rico segment are encumbered by a recourse revolving
line of credit facility.  The homebuilding and land assets in Parque
Escorial are not encumbered by this facility and remain unencumbered as of June
30, 2008.  The line of credit bears interest at a fluctuating rate
equivalent to the LIBOR Rate plus 200 basis points (4.68% at June 30,
2008).  The Company recently extended the maturity date for this
facility from August 31, 2008 to August 31, 2009.  As part of the
extension, the Company agreed to an increased rate equal to the LIBOR Rate plus
225 basis points beginning July 1, 2008, a reduction of the overall facility
from $15,000,000 to $10,000,000 and to use the credit facility for the
development of infrastructure in Parque Escorial and Parque El
Comandante.  The outstanding balance of this facility on June 30,
2008, was $1,775,000.
 
 Non-Recourse Debt - U.S.
Operations
 As more
fully described in Note 4 to our Consolidated Financial Statements included in
this Form 10-Q, the non-recourse apartment properties' debt is collateralized by
apartment projects.  As of June 30, 2008, approximately 38% of this debt is
secured by the Federal Housing Administration ("FHA") or the Maryland Housing
Fund.  There were no significant changes to our non-recourse debt
obligations for our U.S. operations during the six months ended June 30,
2008.
 
 -29-
 Table of Contents
 Non-Recourse Debt - Puerto
Rico Operations
 As more
fully described in Note 4 to our Consolidated Financial Statements included in
this Form 10-Q, the non-recourse debt is collateralized by the respective
multifamily apartment project or commercial building.  As of June 30, 2008,
approximately 1% of this debt is secured by the Federal Housing Administration
("FHA").
 On May
12, 2008, IGP agreed to provide a fixed charge and debt service guaranty related
to the Escorial Office Building I, Inc (“EOB”) mortgage.  The fixed
charge and debt service guaranty requires IGP to contribute capital in cash in
such amounts required to cause EOB to comply with the related financial
covenants.  The guarantee will remain in full force until EOB has
complied with the financial covenants for four consecutive
quarters.  The Company does not expect the funding of this guarantee
to have a material impact on its liquidity and cash flows.  There were
no other significant changes to our non-recourse debt obligations for our Puerto
Rico operations during the six months ended June 30, 2008.
  Purchase Obligations and
Other Contractual Obligations
 In
addition to our contractual obligations described above, we have other purchase
obligations consisting primarily of contractual commitments for normal operating
expenses at our apartment properties, recurring corporate expenditures including
employment, consulting and compensation agreements and audit fees, non-recurring
corporate expenditures such as improvements at our investment properties, the
construction of the new apartment projects in St. Charles, costs associated with
our land development contracts for the County’s road projects and  the
development of our land in the U.S. and Puerto Rico. Our U.S. and Puerto Rico
land development and construction contracts are subject to increases in cost of
materials and labor and other project overruns. Our overall capital requirements
will depend upon acquisition opportunities, the level of improvements on
existing properties and the cost of future phases of residential and commercial
land development.
 In
addition to our contractual obligations described above, we have other purchase
obligations consisting primarily of contractual commitments for normal operating
expenses at our apartment properties, recurring corporate expenditures including
employment, consulting and compensation agreements and audit fees, non-recurring
expenditures such as improvements at our investment properties, the construction
of the new projects in St. Charles, costs associated with our land development
contracts for the County’s road projects and  the development of our
land in the U.S. and Puerto Rico. Our U.S. and Puerto Rico land development and
construction contracts are subject to increases in cost of materials and labor
and other project overruns. Our overall capital requirements will depend upon
acquisition opportunities, the level of improvements on existing properties and
the cost of future phases of residential and commercial land development. For
the remainder of 2008 and into 2009, the Company plans to continue its
development activity within the master planned communities in St. Charles and
Puerto Rico and may commit to future contractual obligations at that
time.
 As of
June 30, 2008, the Company has $15,735,000 recorded as accrued income tax
liabilities and $3,546,000 as accrued interest on unpaid income tax liabilities
related to uncertain tax positions as required by the provisions of FIN
48.  We are unable to reasonably estimate the ultimate amount or
timing of settlement of these liabilities.
 
 Liquidity
Requirements
 Our
short-term liquidity requirements consist primarily of obligations under capital
and operating leases, normal recurring operating expenses, regular debt service
requirements, investments in community development, non-recurring expenditures
and certain strategic planning expenditures.  The Company has
historically met its liquidity requirements from cash flow generated from
residential and commercial land sales, home sales, property management fees,
rental property revenue, and financings.
 Pursuant
to agreements with the Charles County Commissioners, the Company is committed to
completing $15,315,000 of infrastructure expected to be funded through
$14,092,000 of County bond proceeds, either by existing bond receivables or
anticipated future issuances.  The Company expects to incur $6,576,000
of this development over the next twelve months, of which $5,352,000 is expected
to be funded by County bond proceeds.  Further, as the Company nears
completion of several significant County Roads Projects, $5,022,000 of retention
and open payables as of June 30, 2008 will be required to be funded, none of
which are eligible for bond funding.  In addition to County committed
development, approximately $7,200,000 of project development is currently under
contract, all of which is expected to be incurred over the next 12
months.  These project costs and the difference between the cost of
County projects and any bond proceeds available to fund related expenditures
will be funded out of cash flow and/or our $14,000,000 revolving credit facility
or working capital.  As of June 30, 2008 we had contracts in place for
$402,000 of planning and development costs in Puerto Rico of which $146,000 is
expected to be incurred over the next twelve months.  In addition, on
July 22, 2008, the Company signed a construction contract for $5,960,000 of site
development related to the infrastructure of Hilltop phase I site development
for future 220 condominium units in Parque Escorial which is expected to be
incurred during the next eleven months.  Our $10,000,000 credit
facility will be used to fund these expenditures.  Further, we may
seek additional development loans and permanent mortgages for continued
development and expansion of other parts of St. Charles and Parque Escorial,
potential opportunities in Florida and other potential rental property
opportunities.
 On June
24, 2008 the Company and Cynthia L. Hedrick, Executive Vice President and Chief
Financial Officer, entered into a separation agreement requiring the Company to
pay Ms. Hedrick a $50,000 bonus and $600,000 severance payment. In response to
new federal tax regulations, the Company will deposit the severance payment into
a trust account on August 14, 2008, to be disbursed to Ms. Hedrick on February
15, 2009, subject to the terms of a Rabbi Trust Agreement.
 Management
has noted a current reduction in the demand for residential real estate in the
St. Charles and Parque Escorial markets.  Should this reduced demand
result in a significant decline in the prices of real estate in the St. Charles
and Parque Escorial markets or defaults on our sales contracts, it could
adversely impact our cash flows.  Although Lennar is contractually
obligated to take 200 lots per year, the market is not currently sufficient to
absorb this sales pace.  Accordingly, Lennar’s management requested
and the Company granted a reduction of the 200 lot requirement for
2007.  In addition, the Company agreed to a temporary price reduction
to 22.5% of the selling price of the home for 120 lots, 69 of which Lennar
purchased during the first six months of 2008.  Further,
should there also be a reduced demand for our commercial property our cash
flow would be adversely impacted.
  -30-
 Table of Contents
 As a
result of our existing commitments and the downturn in the residential real
estate market, management expects to use its resources conservatively in 2008
and 2009.  As such, the Board of Trustees elected not to award 2007
bonuses to executive management or declare a dividend to our shareholders for
the first and second quarters of 2008. Anticipated cash flow from operations,
existing loans, refinanced or extended loans, asset sales, and new financing are
expected to meet our financial commitments for the next 12 months. However,
there are no assurances that these funds will be
generated.
 The
Company will evaluate and determine on a continuing basis, depending upon market
conditions and the outcome of events described under the section titled
"Forward-Looking Statements," the most efficient use of the Company's capital,
including acquisitions and dispositions, purchasing, refinancing, exchanging or
retiring certain of the Company's outstanding debt obligations, distributions to
shareholders and its existing contractual obligations
 
 
 ITEM
      4.
              CONTROLS AND
PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 In
connection with the preparation of this Form 10-Q, an evaluation was performed
under the supervision and with the participation of the Company's management,
including the CEO and CFO, of the effectiveness as of June 30, 2008 of the
design and operation of our disclosure controls and procedures as defined in
Rule 13a-15(e) under the Exchange Act. Based on that evaluation, the CEO and CFO
concluded that these disclosure controls and procedures, as of the end of the
period covered by this report, because of the significant deficiencies discussed
below, were not effective in ensuring that the information required to be
disclosed in our reports filed with the SEC is recorded, processed, summarized
and reported on a timely basis.  Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files
or submits with the SEC is accumulated and communicated to the issuer’s
management as appropriate to allow timely decisions regarding required
disclosure.
 During
June 2008, the audit committee of our board of trustees commenced an
investigation into a possible violation of our established policies in
connection with our Chairman and CEO’s efforts in 2007 to recruit a new member
to our senior management team.  These efforts included the execution
by our Chairman and CEO of a summary of agreement with the potential Company
officer, subsequently retained by the Company as a
consultant.  Company policies require that new hire salaries greater
than $100,000 must be approved by the Compensation Committee of the Board of
Trustees.  Furthermore, the Chairman does not have the authority to
hire an officer of the Company without the express approval of a majority of the
Board of Trustees.  While the Company, upon advice of independent
counsel retained by the audit committee in connection with the investigation,
has determined that the summary of agreement was not a binding contract, its
execution was not made known to the Company’s financial management as
appropriate to allow timely decisions regarding disclosure.
 The
Company is taking steps to ensure that the significant deficiencies are
remediated, including by adopting the additional procedures listed
below.  We believe that instituting such enhanced internal control
procedures and disclosure controls and procedures is in line with current public
company best practices and is specifically designed to prevent the recurrence of
the current situation.
 •           All
business arrangements subject to the Board’s jurisdiction, including, but not
limited to, employment offers to senior executives and officers should be
authorized by the Board or a sub-Committee of the Board in advance of any
written agreement or LOI.
 •           All
business arrangements subject to the Board’s jurisdiction, including, but not
limited to, employment offers to senior executives and officers, should contain
clear language specifying the offer is contingent upon review by legal counsel
and the approval of the Board.
 •           The
Company should develop clear contracting procedures applicable to all business
arrangements, including the advance review and approval of all contracts by
finance and legal personnel and the manager of the appropriate business
unit.
 •           Copies
of all executed contracts or LOIs should be immediately forwarded to the finance
department, which shall maintain copies in a centralized location.
 •           All
officers and employees should immediately respond to requests for information
from members of the Board of Trustees or company
counsel.  Noncompliance with such requests may lead to significant
sanctions as determined appropriate by the Board.
 •           Consensus
must be reached by the Governance and Nominating Committee prior to commencement
of any efforts for recruiting top-level management.
 •           ACPT
officers and employees should use only their ACPT email accounts to conduct
Company business.  Personal accounts should not be used to conduct
ACPT’s business.
  Changes
in Internal Control Over Financial Reporting
 The
Company’s management, with the participation of the Company’s CEO and CFO,
evaluated any change in the Company’s internal control over financial reporting
that occurred during the quarter covered by this report and determined that
there was no change
in the Company’s internal control over financial reporting during the quarter
covered by this report that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
 
 PART
      II
              OTHER
      INFORMATION
 
 ITEM
      1.
              LEGAL PROCEEDINGS
 
 See the
information under the heading "Legal Matters" in Note 5 to the consolidated
financial statements in this Form 10-Q for information regarding legal
proceedings, which information is incorporated by reference in this Item
1.
 
 -31-
 Table of Contents
 ITEM
      1A.
              RISK FACTORS
 
 There has
been no material change in the Company’s risk factors from those outlined in the
Company’s Annual Report on Form 10-K for the year ended December 31,
2007.
 
 ITEM
      2.
              UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
 
 None.
 
 ITEM
      3.
              DEFAULTS UPON SENIOR
  SECURITIES
 
 None.
  ITEM
      4.
              SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
 
 ACPT held
its 2008 Annual Meeting of Shareholders on June 4, 2008.  At the
meeting, shareholders voted on the election of five trustees; three to serve a
three year term expiring at the 2011 Annual Meeting; one to serve a two year
term expiring at the 2010 Annual Meeting; and one to serve a one year term
expiring at the 2009 Annual Meeting.  The results of the voting were
as follows:
 
 
 Trustee
              Term
              
              Votes For
              
              
              Votes WithheldDonald
      J. Halldin
              2011
      Annual Meeting
              
              
              4,370,719
              
              
              
              650Eric
      P. Von der Porten
              2011
      Annual Meeting
              
              
              4,370,669
              
              
              
              700Ross
      B. Levin
              2011
      Annual Meeting
              
              
              1,652,240
              
              
              
              2,719,129Michael
      E. Williamson
              2010
      Annual Meeting
              
              
              4,363,519
              
              
              
              7,850Thomas
      E. Green
              2009
      Annual Meeting
              
              
              4,365,919
              
              
              
              5,450
 
 For
nominees to be elected, each must receive to affirmative vote of the majority of
the Company’s outstanding shares.  Under the standard, Messrs.
Halldin, Von der Porten, Williamson and Green were elected but Mr. Levin was
not.  The terms of J. Michael Wilson, Thomas J. Shafer, Edwin L. Kelly
and Antonio Ginorio continued after the meeting and each continue to serve as a
trustee.
 
 ITEM
      5.
              OTHER
INFORMATION
 
 As
announced previously, Cynthia L. Hedrick, Executive Vice President and Chief
Financial Officer, is leaving the company on August 14, 2008.  Matthew
M. Martin, Vice President and Chief Accounting Officer, has been appointed to
serve as the principal financial officer for the Company effective August 15,
2008.
  ITEM
      6.
              EXHIBITS
 
 (A)
              Exhibits31.1
              Rule 13a-14(a)/15d-14(a) Certification of Chairman and
      Chief Executive Officer31.2
              Rule 13a-14(a)/15d-14(a) Certification of Chief
      Financial Officer32.1
              Section 1350 Certification of Chairman and Chief
      Executive Officer32.2
              Section 1350 Certification of Chief Financial
      Officer
 -32-
 Table of Contents
  SIGNATURES
 
 
 Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
 
 AMERICAN COMMUNITY PROPERTIES
      TRUST(Registrant)Dated:  August
      14, 2008
              By:
              /s/
      J. Michael WilsonJ.
      Michael Wilson
                Chairman
      and Chief Executive OfficerDated:  August
      14, 2008
              By:
              /s/
      Cynthia L. HedrickCynthia
      L. Hedrick
                Chief
      Financial OfficerDated:  August
      14, 2008
              By:
              /s/
      Matthew M. MartinMatthew
      M. Martin
                Chief
      Accounting Officer
 
 
  -33-